June 22, 2022 19:51 GMT
- We have leaned towards a 50bps hike, but we stress that uncertainties are high. It will be even more important to see Norges Bank’s (upward) revision of the further trajectory of the key policy rate path. For some time, we have expected Norges Bank to deliver one additional rate hike this year (relative to the central bank’s projections so far). But as things have turned out, we now believe that Norges Bank will add yet another rate hike this year, with the new rate path showing the key policy rate up to 2.0 percent by the end of this year.
- With capacity pressures running hot, core inflation well above target and with further risks to the upside, Norges Bank will have to move faster into contractionary territory. Against this backdrop, the actual policy rate is currently way too low and Norges Bank not only needs to catch up, but to enter a contractionary mode before end of the year.
- To be precise, we believe that Norges Bank will hike by 50bps at the upcoming June meeting, and we also expect the new path to show a series of 25bps hikes further ahead: August, September and December (with November as the only pause).
- Further ahead, we believe the key policy rate will continue to rise in measured steps, to closer to 3 percent by year-end 2023. Towards the end of the forecasting horizon (2025), however, we believe that the policy rate will gravitate closer to 2.50 percent; signalling that the policy rate will start the process of moving closer to neutral, conditional on Norges Bank seeing capacity pressures easing, and inflation moving closer to target.