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[PREVIEW] Norges Bank policy announcement due Thursday 24th January 2019

  • Expectations unanimously are set on an unchanged rate of 0.75%, with focus set on the accompanying statement
  • HSBC cite lower global rate expectations as one of the major stumbling points for the Norges Bank’s rate path
  • ING do not believe that this will be enough to stop the March hike amid recovering oil prices and the prosperous local economy.

INTRODUCTION On Thursday the Norges Bank will hold their rate decision, with analysts unanimously expecting an unchanged rate of 0.75%. This meeting will not have an accompanying press conference or provide new forecasts with the policy statement the major focus, as analysts look for confirmation of a 25bps hike in March.

BACKGROUND At the December meeting, the Norges Bank left their rate unchanged at 0.75% and reiterated their intention to raise rates in Q1 2019. The Central Bank also flattened their 2020-21 rate path and stated in the wake of the collapse in oil prices that should this continue, domestic wage growth will slow.

CRUDE The oil market is likely to be less of a factor than it was at the previous meeting, with prices recovering and up by ~10% since the December meeting. The Norwegian Petroleum Directorate’s latest survey also showed that investment in the Norwegian oil market is expected to increase by more than 10% in 2019, slightly more than the Norges Bank’s expectations. This has led ING to state that the “prospects for the all-important energy sector look bright”.

DOMESTIC DATA Whilst domestic data releases have been on the lighter side for Norway since the December meeting, the few publications have been net positive. January’s inflation release will likely offer some upward pressure to Norges’ inflation forecasts as all lines came in above expectations, with core CPI YY running 10bps above the Central Bank’s expectations (2.1% vs. Norges exp. 2.0%). Looking at growth there is positivity to be found, with the latest manufacturing PMI upwardly revising December’s reading to 56.2 whilst retail sales MM also saw an inspiring release that came in 80bps above street expectations (0.9% vs. exp. 0.1%).

GLOBAL HEADWINDS Whilst things look rosy on the data front in Norway, the global market is seen offering roadblocks to the intention to hike in March. HSBC cite lower global rate expectations as one of the major stumbling points for the Norges Bank’s rate path, with this largely driven by the Fed’s revised guidance and dovish rhetoric. Combining this with the loss of growth momentum in key major partners in Europe and China leaves question marks as to whether the Central Bank should push back their scheduled hiking date, as according to Scotiabank.

BANK EXPECTATIONS As a result of the aforementioned global headwinds, HSBC expect the Norges Bank to make signals at the upcoming meeting for a flatter rate path. They see the Central Bank pushing back their next hike to June and see no more hikes henceforth for 2019 to avoid stymieing local prosperity. ING, whilst sharing in HSBC’s belief that the deteriorating global outlook will be referenced in the statement, do not believe that this will be enough to stop the hike in March as a result of recovering oil prices and the prosperous local economy.

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