Norges Bank Preview: No shift in policy stance coming - ING

Jonas Goltermann, Developed Market Economist at ING, suggests that the Norwegian central bank meeting is likely to prove a non-event and it will not be shifting its policy stance at the October meeting.

Key Quotes

“The September decision shows the NB is reluctant to increase rates any faster than the two hikes per year indicated in the current forecast. The key reason behind this caution is the high degree of indebtedness among Norwegian households related to the rapid house price increases over recent years.”

“This means consumer spending is sensitive to higher rates -- especially as much of Norwegian mortgage debt is floating rate or short-term fixed rate – and the impact of higher rates is difficult to estimate.”

“In our view, this means that while the tone from the NB could turn more hawkish if the outlook continues to improve (though probably in December rather than now), the bar for actually increasing the pace of tightening is fairly high until there is more certainty on how higher rates are affecting households.”

“From a market perspective, the NB’s October meeting is likely to prove a non-event. The pricing of future interest rates is close to the NB’s forecast and unlikely to move much unless the NB signals a change in stance.”

“The Norwegian krone (NOK) has strengthened recently, in large part due to higher oil prices, but the NB is unlikely to provide much support for the currency from current levels, which are in line with its September projections.”