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Norway

50 is the new 25 for the Norges Bank

Following today’s decision by the Norges Bank to raise its policy rate by 50bp at the second consecutive meeting, we now expect the Bank to make it a hat-trick of 50bp hikes at the next meeting in September. With price pressures looking strong, further rate increases are likely to follow.

18 August 2022

Norges Bank has further to go

The Norges Bank said in June that it was likely to raise its policy rate by 25bp at its meeting next week, but we now think it is more likely to go for a 50bp hike. Whatever it decides on interest rates, we expect it to signal strongly that further hikes will be needed in the coming months.

11 August 2022

Norway Consumer Prices (Jul.)

The increase in CPI-ATE to a record-high will have raised eyebrows at the Norges Bank. We think another 50 basis point hike at next week’s interim meeting is likely.

10 August 2022
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Norway Consumer Prices (Jun.)

The services-driven increase in Norway’s core inflation rate in June increases the chance that the Norges Bank will raise its policy rate by another 50bps at its August policy meeting.

Riksbank shifts up gears but rate “summit” is in sight

While the Riksbank stepped up the pace of tightening this week, the fact that Swedish households are highly sensitive to rate hikes, and the likelihood that weakening activity will soon reduce the ability of firms to continue to push up prices, argues for a comparatively short tightening cycle, with interest rates peaking at a lower level than in many advanced economies (2%). Next week, the release of June consumer price inflation data from Switzerland on Monday is likely to show that the headline rate rose above the 3% mark for the first time since 2008.

Scandi & Swiss: Rising interest rates to hit values

The rapid turnaround in the interest rate environment has led us to revise down our expectations for property performance in Scandinavia and Switzerland. Property valuations deteriorated sharply in Q1 and are expected to come under more pressure given further rises in bond yields. We now think property yields will reach their troughs this year and will rise by a cumulative 30bps-35bps over the following few years. With structural changes weighing on the office and retail sectors, rental growth is unlikely to be strong enough to prevent a material slowdown in capital value growth, with falls likely in 2023-24. This will contribute to a sharp drop in returns after this year. Within this, industrial is still expected to perform best, but the margin of outperformance will reduce significantly compared to recent years.

Norges Bank joins the “50bp club”

This morning’s decision by the Norges Bank to raise its key policy rate by 50bps, to 1.25%, was in line with our non-consensus forecast. Also, as we predicted, the Bank all but confirmed that it will break with tradition and raise rates at the “interim” meeting in August, to 1.50%.

More on the SNB; Norges Bank to hike by 50bp

Even after the strong gains in the franc against the euro and US dollar after yesterday’s SNB rate hike, the Swiss real effective exchange rate is still about 5% below its level in early 2020 when the SNB intervened heavily. Parity with the euro is not an economically-meaningful barrier, and the Bank would probably not be too concerned to see the franc rise to around CHF 0.975 per euro in the near term. The main event next week will be the Norges Bank announcement on Thursday, at which we expect policymakers to hike rates by 50bps (consensus 25bps) and prepare the groundwork for another rate rise at the “interim” August meeting. Markets Drop-In (22nd June, 10:00 ET/15:00 BST): Join our Markets team for this special briefing on the outlook for equities, bonds and FX and a discussion about revisions to our forecasts. Register now

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