Norges Bank preview: Rate hike in June and probably September – Nordea Markets

According to Erik Johannes Bruce, analyst at Nordea Markets, Norges Bank will hike and most likely signal another hike in H2, most likely September, while the rate path will be on the high side to market expectations.

Key Quotes

“Norges Bank’s rate decision and a new rate path will be published at 10.00 Thursday 20 June. Given Norges Bank’s signals at the May meeting and the development in the economy there is little doubt that Norges Bank will hike key rates to 1.25% in line with the March path. The main question is how the rate path will be. We believe it will be lifted compared to the March path in the short end giving a high probability for a hike again in September and then one or two hikes in 2020. However, longer out it will be lower than the March path.”

“The path will be far on the upside to current market pricing, however markets will to a large extent ignore that. Nevertheless, that Norges Bank indicates faster rate hikes at a time where all other major central banks that we know about are doing the opposite will probably be a surprise to many. Therefore, we should see a stronger NOK and higher FRAs if we are right.”

“The main uncertainty this time is how Norges Bank will react to the latest uncertainty connected to the trade war. We do not think it will have a strong impact on the main scenario.”

“In sum, we believe in a path that gives a more than a 50% probability for a new hike already in September and then one or two additional hikes in 2020. The path will bend slightly down in the longer term. In other words, the path will contain rate cuts in 2021/2022.”