Interest rate decisions from Norges Bank and ECB set to impact markets: Expert analysis

On Thursday, the interest rate decision will come from both Norges Bank and the European Central Bank. Already the evening before, the interest rate day starts with the Federal Reserve.

An interest rate peak of 3.5 per cent was what Norges Bank outlined when they raised the interest rate to 3 per cent in March. Now both Handelsbanken and DNB Markets predict that the interest rate peak will be even higher.

The latter believes that the weak krone exchange rate will also be able to contribute to a higher interest rate peak, which could end up at 4 per cent.

On Thursday, we will get the answer to some of the way forward. Chief economist at Handelsbanken, Marius Hov, is crystal clear in his speech. The interest rate continues to rise, but a lot has happened since the last meeting in March. That is why he hopes that Central Bank Governor Ida Wolden Bache talks more about the way forward than Norges Bank usually does at what is categorized as an “interim meeting”.

– There is not much tension around the decision itself. The interest rate path indicates a rise in both May and June. The track has also opened for an additional elevation. This is an intermediate meeting, so the forecasts will not be made, but I think they will say something about the way forward, says Hov to E24.

– May have consequences for the interest rate path

Although the vast majority agree that the interest rate will continue to rise, Hov does not believe in a double increase, even if the weak krone exchange rate is a slight joker. At the same time, the deviation in the krone exchange rate as of today is so large that the chief economist believes that an additional interest rate hike can be factored in if it does not turn around in the next few months.

– I see no reason why we should get a double raise this time. Then we had to see bigger deviations. The krone exchange rate is a topic, but it is not enough on its own. The exchange rate curve is 3.5 percent. There is a lot and may have consequences for the interest rate path in the longer term. But it is not long until the next meeting. Then they will be more specific about what happens next.

– Take time

The inflation target of 2 percent currently seems like a figure Norges Bank can only dream of. Core inflation, which in many ways is a pointer to where the interest rate should be, is still well over 6 per cent. Hov sees no immediate signs that core inflation is calming down here at home.

– If we look at the composition of this, the figures show that the curve is slightly sideways. Norges Bank shows in its forecasts that it is patient. The interest rate has risen a lot, but they could drive it straight up if they were in a hurry to slow inflation. The forecasts show that it will not be until 2026 that it approaches normal conditions, says Hov, who adds that they see that the funds saved by many households during the pandemic are starting to run out.

– Our forecast of an interest rate peak of 3.75 per cent still stands, although others have now extended the notch further. In Norges Bank’s interest rate path, they took into account that the interest rate path could extend higher than 3.5 per cent. In other words, little is needed. The interest rate market is priced between 3.5 and 3.75 as the interest rate peak. It has lifted since the meeting in March, when we were still in a situation with a lot of bank uncertainty.

Although the situation has calmed down, last week’s situation around First Republic Bank has indicated that there is still uncertainty. But Hov has little faith in a repeat of the weeks in March.

– The unrest has flared up a bit again, but the worst of the unrest is probably behind us. What one is concerned with in the future is what consequences this will have.

Interest rates both in the US and Europe

But it is not just here at home that there will be a new interest rate decision. A two-day interest rate meeting will start on Tuesday, which will lead to a new interest rate decision from the US central bank. The decision will be announced on Wednesday evening Norwegian time.

The key interest rate in the Americans is now in the interval between 4.75 and 5 per cent. In March, the Fed raised the interest rate by 0.25 percentage points. The interest rate increase was the ninth in a row to date.

They did this despite the banking crisis that was raging, which started with the collapse of Silicon Valley Bank (SVB). Recently, there has also been chaos around the crisis bank First Republic, which has had almost all its value shaved off on the New York Stock Exchange.

On Monday morning, it became known that First Republic was taken over by the US authorities. Thus, the second largest bank collapse in US history was a fact. Now the authorities have accepted a bid from JPMorgan, which thus takes over the deposits and assets of First Republic.

Fed chief Jerome Powell justified the previous hike by saying that they must continue to try and cool the economy, as inflation levels are still far too high, and that the strong job numbers continue to surprise.

Chief economist Hov thinks we will get the tenth straight increase this week.

– It is expected that they will raise the interest rate, but it will probably be the last increase. The developments that have come from the Fed lately suggest that there is an overall assessment to raise. But it is also signaled that you are now reaching the interest rate level you want, says Hov.

According to the chief economist, the market predicts that the interest rate will fall again in the autumn, but the Fed will not give explicit guidance on that right now.

– Total inflation in the US has fallen, but core inflation is still very high. The wage figures before the weekend were also higher than expected. These are not compatible with the long-term inflation target.

Inflation figures can affect

The European Central Bank will also announce its interest rate decision on Thursday. There, an increase of 0.25 percentage points is expected, but fresh inflation figures on Wednesday may influence the decision, says Hov.

– If these figures are surprisingly strong, it could tip the decision to 0.5 percentage points. There are some analysts who expect that, so it will also be an exciting event this week.

The results season continues

After a proper foretaste this week, the results season continues in full force next week. Several big fishers present their quarterly reports. Among these are Equinor, Telenor and Aker Solutions. In the US, Apple presents its first quarterly figures from 2023.

Although Thursday is the big interest rate day here at home, there will also be fresh housing figures for April and monthly export figures for salmon and trout.

The airline industry is both tough and unpredictable. Norwegian will present its figures on Friday. Out on the continent, both Lufthansa and Airbus do the same.