It Won't Get Worse? Norwegian Economists Reassure

There has been speculation in Norway about another move by the central bank before the summer holidays, specifically a possible interest rate hike at the June meeting. According to Nordea economists, this scenario is currently unlikely. In the "Norges Bank Watch" report, they pointed out that the topic of a June hike is not being discussed.

Economists Kjetil Olsen and Sara Midtgaard wrote in the report that they have long disagreed with market speculation. Now, they are even more firm in this stance. In their view, a hike in June would require dramatic new information, specifically data indicating significantly higher inflation.

According to Nordea, such a signal has not yet appeared. Additionally, the economists point to lower oil prices. They also mention reductions in fuel charges and add cheaper monthly tickets in several municipalities. All these factors contribute to lower price pressure.

Nordea also draws attention to the Norwegian currency exchange rate. The Norwegian krone has strengthened by about 2 percent more than Norges Bank had assumed. Economists point out that a stronger currency helps curb inflation. In their view, the central bank will want to defend this effect.

Sara Midtgaard reminded in Dagens Næringsliv that the March rate path assumed a full probability of a hike in the spring. That move already took place in May. The same path also indicates a 50 percent probability of another hike in the autumn. According to Midtgaard, this is not enough to justify a move already in June.

The next important point for the market will be the May inflation data, which the Central Statistical Office will publish on June 10. Nordea Markets expects core inflation at 3.2 percent. This is slightly less than Norges Bank's estimate of 3.3 percent. Nordea economists indicate that only a clear increase in price pressure could change the outlook before the June meeting.