DNB reverses the evolution of interest rates: expects interest rates to rise already this year

Economists at DNB Markets believe that the central bank will raise interest rates in December. So they think it will go hand in hand with three interest rate hikes in 2022.

This is the first time that DNB includes interest rate jumps in 2021 in its forecasts.

DNB is thus following in the footsteps of Nordea, which last month also announced an interest rate hike in December, and thus is approaching Danske Bank, which for almost two months had forecast a rate hike until the autumn, in September.

Norges Bank normally changes the interest rate every time in a quarter, that is, 0.25 percentage points. Therefore, the new DNB forecasts mean that interest rates at the end of next year may be one percentage point higher than current ones.

Vaccines and growth

DNB refers to Norges Bank account statements for December and January. In December, the central bank’s outlook was for interest rates to remain at current levels over the next year, followed by incremental increases in interest rates throughout 2022.

Norges Bank’s message was more or less the same in January, but DNB has noted that the central bank also mentions that the prospects for vaccinating the population have improved. In his annual address last week, Governor Øystein Olsen also said that as soon as there are signs that economic conditions are normalizing, the bank will seek normalization.

DNB believes that these statements, supported by economic growth figures and infection figures, now mean that a light can be seen at the end of the tunnel and that interest rates will therefore rise in December.

With this, DNB is closing in on Danske Bank, which until now was the only major bank to announce an interest rate hike this year. Danske Bank predicts a rise in interest rates all in September, a forecast the bank came to after the Norges Bank’s monetary policy report was released in December.

– It all depends on vaccination in the future. Our forecasts are based on the plan of the health authorities that the population has been vaccinated during the summer, says Frank Jullum, chief economist at Danske Bank.

He explains that Norges Bank’s forecast is based on a final vaccination during 2021, with the first interest rate hike in March 2022. With a final vaccination this summer, that is, six months earlier, Danske Bank believes that the increase in interest rates will also occur six months earlier. .

Arrows point up

The Norwegian economy also performed better towards the end of 2020 than was feared. Norges Bank believed that economic growth measured in gross domestic product (GDP) for the continental economy in 2020 would end at minus 3.5, while the bottom line ended at minus 3.2 percent.

Stronger economic trends, especially in November and December, and relatively stable unemployment figures, mean that DNB believes the economy is so robust that interest rate increases will arrive somewhat earlier than previous forecasts, starting in March. of 2022.

Inflation also shows signs of being higher than previously estimated, 2.5 percent annually in January, while Norges Bank’s forecast was 1.9 percent. In January, the price of electricity in particular raised inflation, but the general trend is that it is on the rise.

Salary growth in 2020 was also significantly stronger than expected, 3.1% according to Statistics Norway, compared to Norges Bank’s estimate of 2.2%.

House prices also continue to rise, which Norges Bank has repeatedly flagged as a concern.

All these macro figures and economic indicators, which are better than Norges Bank predicted, combined with an expectation of economic recovery with the vaccination, mean that an increase in interest rates is getting closer and closer.

Danske Bank argues that the Norwegian economy has performed surprisingly well during the pandemic and that infection control measures especially after the summer have caused much less damage to the economy than the first shutdown in March last year.

– The Norwegian economy has done very well in terms of growth, and much better than the rest of Europe. The economic consequences of the restrictions are less than feared, and we now see an economy operating almost completely normally, except in some industries that are heavily affected by infection control measures, Jullum says.

Here hotels, restaurants and tourism are highlighted as industries that fight against lead.

Internationally, there is also a growing mood to raise interest rates. Last week, among other things, long-term interest rates in the United States rose sharply. The so-called American “ten-year-old” is considered the world’s highest interest rate and is often used as a temperature gauge for the overall economic situation in the world.

Uncertainty about infection.

What speaks against an imminent rise in interest rates and an impending economic recovery is the uncertain outlook of the infection.

DNB notes to be aware that infection can spiral out of control, combined with more infectious mutations, which in turn requires even more restrictive infection control measures to delay the economy reopening.

But the big bank believes this is a less likely scenario and that the economy is now on a positive trend.(Terms)Copyright Dagens Næringsliv AS and / or our suppliers. We would like you to share our cases via a link, which leads directly to our pages. Copying or other use of all or part of the content may only be done with written permission or as permitted by law. For more terms, see here.