Norway’s Central Bank is ready for the first interest rate hike this week. This move is the first among the G-10 that is expected to tighten the ten most traded currencies globally post the pandemic crisis.
As per Bloomberg, Economic recovery, which has been buoyant, has prompted Norges Bank to raise its lending rates by a 25-basis point from the present zero percent. This move places Norway as the Vanguard of the G-10 group, although policymakers from New Zealand had stalled such a move last month.
Hawkish Stance
Among the holders of the main currencies, Norway is the first country set for a post-crisis interest rate hike. This decision will further strengthen Norway’s position as an oil-rich economy among the group even as U.S. Federal Reserve is more tentative in reducing monetary stimulus to the market. Investors are sure of an immediate interest rate hike even as the Norwegian market waits for more signals in 2022.
Dane Chekov, a Nordea Bank Analyst, is sure of a September hike. According to him, “it is all about the signals that will lead to the new direction.” If Norges Bank sticks to the present rate, Chekov expects the new interest rates to fall in the Norwegian market.
Norway’s central bank has stood out among others even before the crisis, thanks to the policy moves created from its oil-driven wealth fund. The central bank’s fiscal aid helped the region’s most prosperous economy weather the crisis created by the pandemic and make a recovery that beat market forecasts.
The current situation, which is now at pre-crisis levels and krone trailing the projections by the central bank, the rate hike may well be signs of tightening.
As per Bloomberg sources, Governor Oystein Olsen had predicted in June this year regarding a 25 basis point hike every quarter by the Central Bank over the next year. With an imminent rate hike in September, Analyst Chekov and his colleague Kjetil Olsen expect four hikes in the next year.
Even as Norway has stood out among the G-10 countries, other economies have also acted. Among them, Hungary has been the most aggressive. On Tuesday, it hiked its benchmark by 15 basis points, slightly lower than expected. Brazil is expected to follow suit on Wednesday with a 100 basis point increase.
The stand by Norges Bank is in sharp contrast to the stand taken by some of the central banks of the neighboring Western European countries. For example, Sweden’s Riksbank did not give any indication of an increase in benchmark lending rates. Also, the Swiss National Bank decision on Thursday is set to keep its negative interest rate of – 0.75% intact, which is presently the lowest in the world today. The European Central bank is still dovish even though they have maintained that dialing down bond-buying does not mean tapering of rates.
Norway’s $1.40 trillion wealth fund, the largest globally, has delivered record budget stimulus. This has helped Governor Olsen avoid taking unconventional policy decisions such as asset purchase or reducing interest rates to negative.
The overall retail and wholesale sentiments in the Nordic region are still weak. While Norway is responding to a pick-up in the economy, Neighbouring Denmark’s Central Bank has warned of uneven economic development led by a labor shortage and disruptions in the supply chain.
