Rate hike by the Norges Bank in December 2018 remains on cards, NOK upside likely in the coming months
Source: FxWire Pro - Insights & Views / 26 Feb 2018 06:23:18 Eastern Standard Time
Norway's mainland GDP grew by 0.6 percent quarter-on-quarter in Q4, with the yearly growth rate rising to 2.6 percent. The Norwegian economic growth is above trend and analysts at DNB Markets estimate trend growth to about 1¾ percent. Oil sector is expected to be a significant contributor to growth this year, while the manufacturing sector is also improving, with production growth ending 2017 on a strong note and orders finally starting to pick up.
The Norges Bank will publish updated forecasts for inflation, wages and interest rates on March 15. Core inflation in Norway was 1.1 percent in January, 0.3 percentage points below Norges Bank’s projection in MPR 4-17. Wage growth was 2.3 percent in 2017, and this year’s wage settlement is expected to start this week. NAV unemployment (which is Norges Bank’s preferred measure to capture capacity utilization) fell markedly in January and is seen approaching a normal situation rapidly.
Norwegian inflation is forecast to accelerate in 2018 to 2.0 percent for the year from 1.8 percent in 2017, a publicly appointed commission said on Monday, pointing to higher wage growth in the coming year. Core inflation, which excludes changes in taxes and energy prices, is expected to rise to 1.6 percent from 1.4 percent, but will still remain well below the central bank's long-term target of 2.5 percent, the wage commission predicted.
Norges Bank Governor Olsen in his annual address last week, refrained from giving any new monetary policy signals to markets. He repeated the possibility of an interest rate hike this year – in line with the current rate path. Olsen also emphasized that the central bank need not be that worried if it takes longer to reach the inflation target.
"We push forward the first expected Norges Bank hike. We now see Norges Bank hiking the policy rate by 25 basis points to 0.75 per cent in December this year in line with Norges Bank’s own forecast (previously we projected the first hike in March 2019)", said DNB Markets in a report.
NOK is trading strong and we see further upside in the coming months. USD/NOK was down 0.45% at 7.7983 at around 1100 GMT. The major is extending decline from highs of 8.4195 hit in Dec 2017. EUR/NOK was down 0.05% on the day at 9.6286.
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