Rate decision, but no new interest rate forecast
Norges Bank will publish its interest rate decision on 8 May at 10.00 CET. It will not present a new interest rate forecast, but in the press release the bank will compare the latest developments to the forecast made in March.
No change
We are in line with all analysts asked by Reuters in believing in unchanged rates. Norges Bank forecast unchanged rates until the summer of 2015 not much more than a month ago. A change in rates already now is highly unlikely. But the press release could give some indication of whether the latest developments point to a later or earlier hike.
Most figures somewhat on the strong side
Most news since the March report seems to be somewhat on the strong side:
- Banks have lowered mortgage rates by about 20 bp. Norges Bank’s loan survey points to lower rates for businesses too. All else equal, this could lower the forecast for rates by, say, 10 bp.
- Housing prices grew by 0.7% m/m in March, somewhat on the upside to Norges Bank’s forecast.
- Retail sales grew strongly both in February and March and Q1 is 0.9% above Q4. Probably stronger than expected by Norges Bank.
- Core inflation was 2.6% last month compared to Norges Bank’s forecast at 2.5%.
- Both LFS unemployment and registered unemployment have moved sideways and if anything that is somewhat on the strong side.
But lower rates abroad
There is some news pointing to lower rates:
- Rates abroad have fallen, but not that much (all else equal, this points to 5 bp lower rates in 2015).
- Norges Bank has made a phone survey of a limited sample of its contacts in its regional network (business survey). The contacts say that growth has failed to increase as they expected and that capacity utilisation has dropped. This might imply that growth is somewhat on the downside to the central bank’s forecast, but not necessarily capacity utilisation (which is expected to fall further). Possibly marginal weaker than expected, but no major impact.
Apart from the factors mentioned, most factors have developed in line with the forecast. The NOK has on average been very close to the Q2 forecast.
No major change, but possibly somewhat more positive
It is hard not to conclude that news since March has been somewhat on the strong side. Lower mortgage rates and the strong increase in both retail sales and housing prices should offset a regional network assessment marginally on the weak side and somewhat lower rates abroad. Still, Norges Bank will most likely be hesitant to send significant new signals about its outlook given the relatively few data we have received since March. So even if the overall tone might be a bit on the optimistic side the central bank will probably stress that that the outlook has not changed significantly. Norges Bank is on hold for a considerable time. We do not believe the wording will give strong market reactions, but the risk is skewed. It is highly unlikely that the central banks sound more pessimistic, while if anything a positive tone could give a somewhat stronger NOK and higher forward rates.
Nordea