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JPMorgan: Expect 25bps, But Sees Risks of 50bps

NORGES BANK
  • We expect Norges Bank to raise rates by 25bps at next week’s meeting taking the policy rate to 1%. There is a risk of a 50bps move as we believe the so-called technical rate path should be screaming for higher rates. However, Norges Bank has numerous times used the “judgment” factor to lower the rate path and only delivered quarterly rate hikes of 25bps as the Committee fears households’ response to higher interest rates.
  • Inflation and wage expectations have only increased modestly, creating less of an urgency to hike rates by 50bp in June. Also, while hiking more than 25bps appears to have become the new normal among DM central banks, we want to remind that 1) Norges Bank has a very strong, credible forward guidance —in contrast to e.g. the Riksbank—which in May pointed to a 25bps rate hike in June, and 2) Norges Bank is not afraid to stand out among DM central banks and only deliver 25bps.
  • We do, however, think it is time for Norges Bank to step out of its comfort zone of raising rates quarterly. Thus, rate hikes of 25bps at the small interim meetings in August in November are now likely and should be reflected in the new rate path.
  • We attach 60% probability to our base scenario, while we see 25% risk of a 50bps rate hike coupled with the rate path showing additional moves of 25bps at the two interim meetings in 2H22. Finally, we see 10% risk of the rate path only showing 25bps hikes in September and December, just as the March rate path did.
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