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NatWest Markets: Sees 25bps and 4 Further Hikes in 2022

NORGES BANK
  • We expect Norges Bank to raise rates by another 25bp and quicken its pace of tightening by lifting its rate path at the June policy meeting amid building inflationary pressures and tight labour market.
  • We see the updated rate path to signal 4 further rate hikes this year, making use of its 2 interim meetings. The terminal policy rate will likely be brought higher to around 3% from around 2.5% currently. Risks are on the upside and there is a good chance of a 50bp hike considering recent upside surprises in inflation data and NOK weakness. Rates markets are currently pricing about seven more 25bp rate hikes by end of ‘22. The hurdle for the central bank to be more aggressive than market pricing appears high, and NOK support should be limited if the central bank hikes 25bp as planned.
  • We expect the central bank to revise down its growth projections but revise up near term inflation forecasts.
  • There seem few signs of wage-prices spiral for now though. The central wage negotiation came in at 3.7% for the coming year, consistent with NB March projections. Local wage negotiations are ongoing, but there seem few signs that there will be a large deviation from the central level. The regional network survey shows that contacts have revised up their estimate for annual wage growth in ’22 to 3.9% from 3.7%, which is not dramatically different from central bank forecast.
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  • We expect Norges Bank to raise rates by another 25bp and quicken its pace of tightening by lifting its rate path at the June policy meeting amid building inflationary pressures and tight labour market.
  • We see the updated rate path to signal 4 further rate hikes this year, making use of its 2 interim meetings. The terminal policy rate will likely be brought higher to around 3% from around 2.5% currently. Risks are on the upside and there is a good chance of a 50bp hike considering recent upside surprises in inflation data and NOK weakness. Rates markets are currently pricing about seven more 25bp rate hikes by end of ‘22. The hurdle for the central bank to be more aggressive than market pricing appears high, and NOK support should be limited if the central bank hikes 25bp as planned.
  • We expect the central bank to revise down its growth projections but revise up near term inflation forecasts.
  • There seem few signs of wage-prices spiral for now though. The central wage negotiation came in at 3.7% for the coming year, consistent with NB March projections. Local wage negotiations are ongoing, but there seem few signs that there will be a large deviation from the central level. The regional network survey shows that contacts have revised up their estimate for annual wage growth in ’22 to 3.9% from 3.7%, which is not dramatically different from central bank forecast.