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JPMorgan: Clues About a Potential Faster Tightening Pace Will Be in Focus

NORGES BANK
  • This week’s meeting is a “small” meeting and hence neither a monetary policy report is released nor a press conference held. Markets see a limited risk of Norges Bank hiking rates and we also attach a very low probability to such an outcome - especially since the March core inflation printed well below expectations. We thus project an unchanged rate at 0.75%, with the statement reiterating that “the policy rate will most likely be raised in June”.
  • The last statement in March also included the sentence that “if there are prospects of persistently high inflation, the policy rate may be raised more quickly”. Markets will therefore be looking for clues of whether Norges Bank sees an increasing probability of either hiking rates at one of the upcoming smaller meetings (on top of the flagged rate hikes at MPR meetings) or going by 50bps at a single meeting. However, as news has been mixed since March, we do not think Norges Bank will change its forward guidance.
  • Our main scenario is though that Norges Bank will continue hiking only at MPR meetings until the policy rate reaches 2.25% in 2023. In our view, the bar to breaking the quarterly pace is still relatively high. This was demonstrated by the March rate path showing the “judgment component” lowering rate expectations in 2022 by 27bps on average, reflecting concerns related to households’ response to higher interest rates.
  • In essence, Norges Bank fears moving more quickly could have a large adverse effect on the housing market. Also, our macro forecast does not suggest an urgent need to raise rates more quickly, as e.g. core inflation should fall back toward the end of 2022 and continue sliding into in 2023.
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