Norges Bank: Hike and tightening bias maintained – Danske Bank

Danske Bank analysts point out that the Norges Bank (NB) this morning has raised policy rates by 25bp taking the sight deposit rate from 1.00% to 1.25% while the rate path was marginally adjusted upwards at the short end and marginally downwards at the long-end.

Key Quotes

“The message is clearly hawkish as a strong domestic business cycle suggests a further frontloading of monetary tightening despite elevated international uncertainty at present.”

“The executive board concluded that the '...current assessment of the outlook and balance of risks suggests that the policy rate will most likely be increased further in the course of 2019 '. The rate path implies a 70-80% probability of that hike coming in September. While NB has previously cautioned against over-interpreting the implied probabilities the press conference did confirm that the board wanted to signal September as the most likely time for the next rate hike.”

“The long-end of the rate path was lowered marginally to 1.67% (from 1.73%). This falls within NB's estimate of the neutral sight deposit rate of [1.60%-2.60%]. Overall the rate path therefore suggests another hike in 2019 and a roughly 70% probability of a second additional hike - most likely in 2020.”

“We now expect NB to hike the sight deposit rate again by another 25bp at the 19 September board meeting. We acknowledge the drop in foreign rates since Friday (the deadline of the MPR) but still think September is more likely than December. For 2020 our base case remains another 2 hikes.”