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Norges Bank kept the key interest rate unchanged at 4.25 percent on Thursday, but maintains that the interest rate will probably be raised before Christmas.
Nevertheless, the door is kept open for another break in December, “if we become more certain that the underlying price increase is on the way down”, said central bank governor Ida Wolden Bache.
Next Friday, Statistics Norway will release statistics for price growth in October, which the market will be eagerly watching. But both Olav Chen, head of allocation and global interest at Storebrand, and senior economist Joachim Bernhardsen at Nordea Markets believe it will take a lot if these inflation figures will shake Norges Bank’s plans for an interest rate increase in December.
– There must be shockingly low inflation to avoid interest rate increases, says Chen.
– Core inflation came down to 5.7 per cent last time, but is still sky high above the target of two per cent. And you cannot control inflation if you do not have control over the exchange rate, since much of what is sold in Norway is sensitive to the krone exchange rate.
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He illustrates this with the following example:
– When I was at Kaffebrenneriet last time and bought a coffee, the price had risen from NOK 40 to NOK 42. This is the fifth price increase I have noticed!
Norges Bank itself highlights the krone as a factor in the press release sent out on Thursday, and points out that the weak krone can contribute to increased inflation.
The balancing act
Senior economist Joachim Bernhardsen also points out that the battle is between inflation figures and the krone exchange rate at the next interest rate meeting.
– There has been a marked weakening of the krone in recent months. You can avoid an interest rate increase in December, but then both the inflation figures for October and November must surprise on the downside. If the krone exchange rate remains at today’s level, however, I think it will take a lot for the interest rate not to be raised, he says.
Senior economist Joachim Bernhardsen in Nordea Markets. (Photo: Nicklas Knudsen) More…
Bernhardsen also believes that the market will pay close attention to new figures on applicants for unemployment benefits in the US, which will be released on Thursday.
The US stock markets went straight up after the interest rate meeting on Wednesday, and the stock market party continued on Friday after new job figures. The summary showed that 150,000 new jobs were created in October, at the same time the September figures were revised down. The development suggests that the Fed, the US central bank, will not raise interest rates any more.
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– Next week it will be exciting to see if the positive moment in the market will persist or if it was just a blip, says Joachim Bernhardsen.
– Interest rates fell significantly. But this is a balancing act. Because if interest rates fall too much, the Fed may need to raise interest rates again.
Don’t believe in soft landing
Olav Chen believes that the labor market figures that came out on Friday can give people hope for a soft landing. The stock market rose, interest rates fell. But, as he says, “be careful what you wish for”.
– I generally do not believe in soft landings. Only two out of 12 recessions since the Second World War have ended with a soft landing in the US, says Chen, who defines a “soft landing” as unemployment increasing by only one, maximum two percentage points.
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– But I believe in an extension of the economic cycle, possibly well into 2024. We are still in the late-cyclical economic phase, and it will be good if the economy holds up until the summer of 2025. And then it can happen quickly: Companies lay off people, there will be lower consumption, more bankruptcies, which in turn will lead to even more companies having to make people redundant. Then we are talking recession with a capital R and a typical hard landing, he says.
– It is almost always the case that unemployment takes the stairs down and the elevator up. (Terms) Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using links, which lead directly to our pages. Copying or other forms of use of all or part of the content may only take place with written permission or as permitted by law. For further terms see here.
2023-11-05 17:18:33
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