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Swedbank: Dilemma between housing market and the NOK

NORGES BANK
  • 50bp clearly remains a viable option, but we stick to our long-held view that Norges Bank will deliver a standard hike of 25bp, but front-load the hikes to include both a hike in August and high probability for a hike also in November – in addition to the more conventional hikes in September and December.
  • There are good arguments for hiking by 50bp already now, as the policy rate should by all means have been higher. However, we think there are several reasons for Norges Bank sticking to 25bp this week. Namely: Norges Bank does not like to surprise, neither markets, businesses nor households, the Bank likes to watch data and scrutinize the effects of their hikes and the growth outlook is already ebbing according to the Regional Network.
  • As Norway has one the world’s most leveraged household sectors, with close to all entertaining floating mortgage rates, it is all but certain how households – and hence the consumption and housing market – will respond to double hikes.
  • Our projection entails four more hikes this year, one each quarter, plus at the interim meeting in August to end at 1.75% in December. After that, we believe the economic momentum will be too weak to sustain more hikes.
  • Market pricing is for more than six hikes this year and a target rate of 3.2%. We see little reason for Norges Bank to be this aggressive this time around, as it would risk stifle the upswing and short-term outlook is more uncertain.
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