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Norges Bank kept its key interest rate unchanged at 4.25 percent on Thursday, but insists the interest rate will likely be increased before Christmas.
Nevertheless, the door is left open for another break in December, “if we become more confident that the underlying price increase is on its way down,” central bank governor Ida Wolden Bache said.
This Friday, Statistics Norway will release statistics on price growth in October, which the market will watch with interest. But both Olav Chen, head of allocation and global interests at Storebrand, and senior economist Joachim Bernhardsen at Nordea Markets believe it will take a lot for these inflation numbers to shake Norges Bank’s plans for a December rate hike.
– There needs to be shockingly low inflation to prevent rate hikes, says Chen.
– Core inflation fell to 5.7 percent last time, but is still well above the 2 percent target. And you can’t control inflation if you don’t control the exchange rate, as much of what is sold in Norway is sensitive to the krona exchange rate.
The article continues below the advertisementHe illustrates it with the following example:
– When I was at Kaffebrenneriet last time and bought coffee, the price had increased from NOK 40 to NOK 42. This is the fifth price increase I have noticed!
Norges Bank itself emphasizes the krona as a factor in the press release sent on Thursday, pointing out that the weak krona could contribute to higher inflation.
The balancing act
Senior economist Joachim Bernhardsen also points out that the battle is between inflation rates and the krona exchange rate at the next interest rate meeting.
– There has been a marked weakening of the crown in recent months. Mon can avoid an interest rate hike in December, but then both the inflation figures for October and November would have to surprise on the downside. However, if the krona exchange rate remains at current levels, I think it will be a long time before interest rates are not raised, he says.
Senior economist Joachim Bernhardsen at Nordea Markets. (Photo: Nicklas Knudsen)Bernhardsen also thinks the market will pay close attention to new data on US unemployment benefit claimants, due to be released on Thursday.
The US stock markets rose immediately after the interest rate meeting on Wednesday, and the stock market party continued on Friday after new jobs figures. The overview shows that 150,000 new jobs were created in October, while at the same time the September figures were revised downwards. The development indicates that the Fed, the American central bank, will no longer raise interest rates.
The article continues below the advertisement– Next week it will be exciting to see if the positive moment in the market will continue or if it was just a blip, says Joachim Bernhardsen.
– Interest rates have fallen significantly. But this is a balancing act. Because when the interest comes for much lower, the Fed may have to raise interest rates again.
Don’t believe in a soft landing
Olav Chen thinks that the labor market figures that came out on Friday can give people hope for a soft landing. The stock market rose, interest rates fell. But as he says: “Be careful what you wish for».
– I generally don’t believe in soft landings. Only two of the 12 recessions since World War II have ended with a soft landing in the U.S., says Chen, who defines a “soft landing” as an increase in unemployment of only one, maximum two percentage points.
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– But I believe in an extension of the economic cycle, possibly well into 2024. We are still in the late-cycle economic phase, and it has to happen if the economy can hold out until the summer of 2025. And then it can happen quickly : Companies are laying off people, there will be less consumption, more bankruptcies, which in turn will lead to even more companies having to lay off people. Then we are talking about a recession with a capital R and a typical hard landing, he says.
– It is almost always the case that unemployment takes the stairs down and the elevator up. (Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases via links that lead directly to our pages. Copying or other use of all or part of the contents may only be made with written permission or as permitted by law. For further conditions see here.
– Inflation must be shockingly low to prevent interest rate increases
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