At the previous rate hike, Norges Bank went so far as to suggest that the interest rate will also rise in September. But according to the chief economists, we can look far beyond the interest rate cuts.
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4.25 per cent will probably be the new normal policy rate for the foreseeable future, says chief economist at DNB Markets, Kjersti Haugland.
– We believe that the interest rate peak will come in September, with a quarter-quarter interest rate increase of 0.25 percentage points. Thus, we believe in a peak of 4.25 per cent. At the same time, we see the probability of it ending up above 4.25 per cent as greater than below. There is an upside risk, says Haugland to E24.
At the same time, she reminds that the market is pricing in an even higher peak than Norges Bank. In that case, it will mean two more interest rate increases, to a peak of 4.50 per cent.
DNB Market’s forecasts show that the economy appears to be stagnating, driven by the fact that consumption shows a weaker development. Consumers are increasingly restrained, the chief economist points out.
– In any case, we believe that this level will remain until December next year, says Haugland.
Read on E24+
– Several are running out of savings
Chief economist at Handelsbanken, Marius Hov, says that they envisage an interest rate cut from Norges Bank from the summer of 2024.
– Such things have moved in the market, the top can drag out further. That the top is pushed out more in time, but also the distance to the first cut, is highly likely, says Hov to E24.
– This depends on the nominal factors. That does not necessarily mean a higher peak, but a longer duration, he adds.
The US could become an interest rate joker
There are many factors that play into how long the level will stay at its peak, Haugland believes.
– It is conditional on the large central banks in the west starting to cut in the summer. If we get it wrong here, which we can do if we look at the US, for example, the peak in interest rates may last longer here at home.
TRACK INTEREST RATE CUT – In 2024: Chief Economist at DNB Markets, Kjersti Haugland, and Chief Economist at Handelsbanken, Marius Hov. Photo: Adrian Nielsen
– We have now had a year of catching up after the pandemic. The ketchup effect is more or less deflated. People are more careful now. There will be weaker consumption into 2024, but should we get this wrong, the interest rate peak will be higher than our forecasts indicate, says Haugland, before adding:
– We also believe that house prices will decrease. For Norges Bank, this will be confirmation that the rise in interest rates we have seen over the past year is helping.
Absolutely sure that Norway will not cut first
The krone exchange rate is one of several jokers for the way forward, emphasizes Haugland.
– The euro is currently at 11.60. We do not think the krone exchange rate will strengthen much in the foreseeable future. But if we see another round of krone depreciation, it is more likely that Norges Bank will raise interest rates more.
Like Haugland, Hov is clear that what happens at the big central banks on the continent will be important for the way forward. Regardless of what happens, Norges Bank will not be the first to cut, he believes.
– Exactly the is absolutely certain. Norges Bank made a point of sharply raising interest rates in June. This was to get “up to date”, especially in light of the weak krone exchange rate. Interest rates among Norway’s trading partners are an important element, says Hov.
The chief economist envisages that the US may take a break in interest rates in September, but that there will be a rise in the fourth quarter.
– The market is completely on edge, says Hov, before turning his gaze to the Eurozone:
– According to recent ESCB figures, there is also a preponderant probability of an interest rate break in September, before a final increase in the fourth quarter.
– No one knows what is happening
Norges Bank’s inflation target of two percent is still a long way off. In the previous Monetary Policy Report in June, the central bank estimated that we will probably have to exit in 2026 before we approach the target.
– Total inflation may fall quite markedly going forward, but core inflation is still high, even if the peak has been passed. Should wage demands be reached at the levels expected, it will prolong the high core inflation. This will also extend the interest rate peak, says Hov.
– Nobody knows what will happen in 2026, but this will take time.
Haugland agrees:
– From next year, total inflation will decrease from 5.8 per cent on annual average to 4.4 per cent. We don’t see high figures in the 2s until 2026. We believe that Norges Bank will struggle to struggle to approach 2 per cent.
– What will be the new interest rate norm for Norwegians in the future?
– The answer to that is very uncertain. Towards the end of our forecast in 2026, the policy rate will be 3.25 per cent. Whether it is a normal level, I cannot say for sure. Inflation of 3 percent is not really good enough. I think that we have to complain that the normal level of the key interest rate is higher than we have been used to.
– Have we been spoiled by the level of interest rates in Norway in the past?
– Yes, but wage growth is at the same time higher. That a higher key interest rate means that most Norwegians will be much worse off in the long term is far from certain, says Haugland.
2023-08-31 09:39:21
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