Norges Bank Preview: No new signals, September hike still in store – Danske Bank

Analysts at Danske Bank do not expect any new signals from Norges Bank at its monetary policy meeting on 3 May.

Key Quotes

“At the meeting in March, Norges Bank signalled that it would raise interest rates 'after summer 2018'. Since then, key figures have been a bit disappointing. In particular, core inflation was 1.2% y/y in March, well below the expected 1.5%. However, two notoriously volatile components - airfares and food prices - surprised on the downside in the run-up to Easter. Adjusted for this, 'core-core' inflation actually rose y/y from 1.4% to 1.5%. The point of this adjustment is to pinpoint the underlying trend in inflation and we see no signs of any disinflationary forces at play.”

“In light of the March retail sales (+1.1% m/m) and despite a somewhat weaker-than-expected NAV report, we believe Norges Bank will conclude that 'domestic growth has been more or less in line with expectations'. The primary risk is that Norges Bank will comment on the slightly weaker economic activity data recently but we think it will refrain from this because of too few observations. Also, due to our 'core-core' calculation, we expect Norges Bank to play down the importance of the lower-than-expected inflation print. Also, the exchange rate is more or less in line with the expectations in March and the wage negotiations ended more or less as expected. The money-market premium is considerably higher than expected but the Loan Survey actually revealed marginally lower mortgages.”

“All in all, we expect Norges Bank to stand its ground and still signal a rate hike 'after the summer' (i.e. September), especially as this is a 'small' meeting with no monetary policy report or press conference. Indeed, over the past years, Norges Bank has tended to give very little new information at these interim meetings. Our own economic projections are fairly close to those of Norges Bank. Hence, we also expect the first rate hike in September.”