Chief economist Kjersti Haugland in DNB Markets does not believe that Norges Bank will raise interest rates as many times as they have announced.
HOTEL BRISTOL (Nettavisen Økonomi): Norges Bank signaled at the interest rate meeting in September that pThe bull rate can be raised seven times by the end of 2024. The first increase came now in September, the next will most likely come in December.
If it goes as the central bank believes, the key interest rate will be up to 1.75 per cent in three years, a typical mortgage rate of over 3 per cent. Haugland thinks this is too high.
– We believe Norges Bank will end at 1.25 percent at the end of 2022, and that the key policy rate will not go up to 1.75 percent, Haugland said at a housing conference organized by Eiendom Norge and Finans Norge in Oslo on Tuesday. To Nettavisen Økonomi, the chief economist elaborates:
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No cooling
– We believe that the way the economy will look at the beginning of 2023, those who sit on the interest rate committee in Norges Bank will not cool the economy further or increase the interest rate further for other reasons, such as financial imbalances.
Financial imbalances are typically an undesirably strong debt growth or an excessively sharp rise in house prices.
– So when do you think Norges Bank will raise interest rates in the future?
– We envisage an increase now in December, one in March and in June next year, and then a further increase during the second half of 2022. It will come either in September or December, Haugland answers. But then, according to the chief economist, it stops.
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Lots of ketchup
Haugland does not rule out that there may be surprises on the upside, ie that things may go better in the Norwegian economy than expected.
– We are still in the ketchup phase, there is more ketchup in the bottle. Both companies and households can use services in a completely different way.
– But in our view, the growth in the economy will have slowed down a lot. And how long does the ketchup effect last? asks the chief economist rhetorically. The ketchup effect now is the great growth in the economy in step with the reopening of society.
Ellevilt
But this effect can not last forever. Chief economist Jan Ludvig Andreassen in the Eika Group believes that both Norges Bank and especially the Ministry of Finance are overly optimistic about the outlook for private consumption growth next year.
– The wild eleven percent, as I call it, Andreassen said at the seminar, referring to the Ministry of Finance’s estimates.
Norges Bank believes that households will increase consumption by 9.6 per cent next year, the Ministry of Finance by as much as 11.1 per cent, while DNB is content with just over 7 per cent. Jan Ludvig Andreassen is down to 5-6 percent and a total growth in the economy of around 2 percent.
– If, contrary to expectation, it should be the case that consumption growth peaks at that time, that it is what drives the economy forward, the situation is a little different, says Haugland about the Norwegian economy in just over a year.
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Moderate
But we believe the chief economist is then in a period of moderate wage settlements. There is nothing now that indicates that the temperature in the Norwegian economy is more than “lukewarm”.
– Growth in the economy is good, but not as good as it used to be. After 2022, we are moving quite parallel to what it was before the corona pandemic. The growth path will be more moderate, Haugland said at the seminar.
– Wage growth has begun to follow a different track. While the growth has previously been 4-5 percent, we have invested more around 3 percent. We believe this will also be the case in the years to come.
– Is Norges Bank too optimistic in its estimates?
– It is a complex picture. But if consumption growth is not unrealistic, we have taken a more cautious line, Haugland answers diplomatically.
Rentejoker
Then we currently have very high energy prices, which among other things gives a stronger krone. Haugland believes the high prices may be temporary.
– Inflation is a problem in the form that it draws in purchasing power when you include energy prices. What is happening with the krone exchange rate now is linked to electricity prices and oil and gas prices. It is a joker when it comes to interest rate setting
Jan Ludvig Andreassen fears a very strong krone as a result of larger interest rate differentials abroad. Haugland de-dramatizes the differences.
– Norges Bank is the only one to have started with interest rate increases, but internationally there is a sharp reprising of interest rate expectations. We are ahead, but not alone, and the other countries are doing it because of inflation. They dare not lose control, says Haugland about interest rate expectations abroad.
Lower krone purchases
In addition, Norges Bank buys a lot of kroner as a result of the deficit in the central government budget. It helps to pull up the crown.
These krone purchases are made to finance the withdrawals from the Petroleum Fund, which is located abroad: We sell currency and buy kroner when we sell down. But with a sharp decline in oil money spending next year the need for krone purchases will fall correspondingly.
– They have not yet started to reduce these purchases to the budget, which they obviously have to adjust. And then there is a very strong rise in the revenues of the oil and gas companies. This means that the companies need to convert to NOK to pay tax, says Haugland.
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