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Danske: Expects 25bps, Signal Next Rise in September

NORGES BANK
  • We expect the top point of the rate path to fall in the 2.50-2.75% range by end-2023 and that the subsequent inversion will prove steeper than in the March Report leaving a close to unchanged end-point of around 2.3%.
  • All is set up for the fourth rate hike in this cycle; the only question is how aggressive Norges Bank will be. If one makes a mechanical calculation of the effect on the rate path from economic factors, you end up with a new rate path that is 50-100bp above the path from the March report, but still 10-50bp below today's market pricing. However, our most important objection to a sharply higher rate path – which is what markets are pricing in - lies in how the NB NEMO-model is designed.
  • Our analysis suggests that NB must use a good deal of judgement when updating the rate path. Domestic demand and capacity utilisation have only been marginally higher than last time, which gives no reason to become more aggressive. This suggests that NB will hike rates by 25bp and repeat the signal that rates will most likely rise in September.
  • That said, wage growth and in particular price growth have been higher than expected. This clearly speaks in favour of announcing a more aggressive monetary policy than in March. Hence, we expect NB, in addition to hiking, to consider the possibility of raising rates again in August, but without this being referred to as 'most likely'.
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