Norges Bank cut its key rate by 25 basis points to a record low 1.00 percent at today’s monetary policy meeting.
Meanwhile, the interest rate path further revised down in the short end, but revised up slightly at the long end.
Governor Øystein Olsen warns that another rate cut could come in the autumn, and the crown reacted by falling sharply.
Nordea caught unaware
Nordea Markets thought in advance that this interest rate cut would be the last, and was therefore surprised that the central bank signaled a new cut already at today’s meeting.
– The biggest surprise today is that Norges Bank has become significantly more concerned about growth . This seems largely to be based on a fairly weak regional networks.
– Norges Bank put more emphasis on this than we expected, but seem to attach less importance to the upward revision of oil investments in 2016. Nevertheless, the interest rate path clear – given no surprises on the upside should we wait a rate cut already In September, writes senior economist Erik John Bruce and analyst Joakim Bernhardsen.
The brokerage hastens therefore his prediction of a rate cut from November to September.
Eyes two rate cuts to
Nordea seems that the central bank’s new estimates for core inflation in 2016, 2.25 percent, is too high even after a downward revision in the current Monetary Policy Report.
– Falling demand for labor in oil-related industries and wide consensus among social partners that we need wage growth in line with our trading partners imply a continued wage growth below 3.0 percent, and not the acceleration Norges Bank predicts, writes Bruce and Bernhardsen on.
– Lower wage growth means lower domestic inflation. In addition, we expect a sharp drop in imported inflation next year, when the effect of depreciation of the krone last year disappear, they continue.
The duo believe wage settlement next spring will indicate wage growth below 3.0 percent, and also see that core inflation falls well below 2.0 percent.
– Our prediction is very different from Norges Bank. But as we believe inflation falls lower than the bank think in 2016, we believe the central bank will be forced to cut interest rates again until summer.
– This will bring the policy rate down to 0.5 percent, says Nordea.
DNB: – A clean cut for this year
DNB Markets writes that the interest rate cut was as expected, but that the interest rate path came out even lower than they had assumed.
– The arguments for a lower interest rate path was well in line with expectations. According to Reuters expecting 6 of 16 analysts asked that the interest rate will be cut to 0.75 percent by year-end. We also believe it.
– We consider it likely that Norges Bank will adjust the estimate for oil investment next year slightly, and wage growth next year could be even lower. It will support a cut, writes senior economist Kyrre Aamdal.
Private consumption is going down
The brokerage bites her mark in that Norges Bank has revised down growth in mainland GDP both this year (by 0.25 percentage point to 1.25 percent) and for the years ahead.
– It is particularly reflected in the estimates for private consumption as restraining growth. In 2016, Norges Bank expects private consumption rising by only 1.75 percent. There is a downward revision from 2.5 percent in the previous report, it added.
This contributes according Aamdal and DNB Markets also that GDP gap is estimated slightly lower than the last time.
– The unemployment rate is revised upwards slightly. Wage growth has been revised down by 0.25 percentage points in all years up to and including 2017. For 2016, the projection for inflation unchanged so that lower nominal wage growth leads to lower real wages.
– Norges Bank has revised upwards for oil investment in 2016 by 5 percentage points to minus 5 percent, writes brokerage.
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