– It will be crucial – E24

The crown situation has been overwhelming since March. Now more vaccines are on the way, but at the same time, a new wave of infections has hit Norway this fall.

New restrictions to stall the infection are spreading across parts of the business community and many companies are facing a harsh winter.

Norges Bank will weigh the various factors at this week’s interest rate meeting.

No one expects the key policy rate to change, but there is more enthusiasm for what Governor Øystein Olsen says about future interest rate developments.

To remedy the crisis in the crown, the central bank has cut the key interest rate by one and a half points since March to a record low of zero percent.

The signs at the crossroads above were that the interest rate will likely remain intact well into 2022, but after recent news about vaccines, more and more experts believe that the first interest rate hike may accelerate.

This view is shared by several of the economists on the E24 interest rate panel.

See the opportunity for interest rate jumps in 2021

– I think Norges Bank will most likely end up raising interest rates in March 2022, but the jump is not unlikely to come towards the end of 2021, says Chief Economist Kjersti Haugland at DNB Markets.

– If all goes well with the deployment of the vaccine, both in deployment and in efficiency, at the same time as house prices soar, I think it will lead to an acceleration. But the jump is unlikely to come until the fall, as the central bank will likely see clear signs that the economy is recovering significantly, he says.

In the UK, mass vaccination has started. The United States gave emergency approval to the corona vaccine from Pfizer and Biontech this weekend and the first doses of the vaccine were administered on Monday. Norway awaits the green light from the EU. It can happen in a few weeks, and in January the first doses may be here.

– How quickly the vaccine program is implemented will be crucial to growth prospects. The stock market will always be more forward-looking, but for the interest rate outlook and growth outlook, the launch of the vaccine will be alpha and omega, says portfolio manager Olav Chen at Storebrand.

The wave of infection provides a brake on growth

Handelsbanken expects recent vaccine news to help Norges Bank raise the key interest rate a quarter or two earlier than the central bank has signaled so far.

– We don’t know exactly how this will play out in the future. We think it will be more exciting for the March meeting – how Norges Bank sees the situation at the time. But they can already start to prepare the ground a bit by raising the trajectory of interest rates, says senior economist Marius Gonsholt Hov.

The interest rate trajectory shows what the central bank considers to be the most probable interest rate evolution in the coming years.

SEB Chief Strategist Erica Blomgren Dalstø points out a challenge for Norges Bank.

– If we look at the assumptions they had in September, the new restrictions and the second wave of infection make growth weaker than expected in the short term.

– On the other hand, positive vaccine news should be able to lead to a slightly faster and more robust recovery starting next summer.

The latest central bank survey of Norwegian companies, conducted before the latest vaccine development, showed that the business community expects weaker growth in the short term, but an improvement in the spring.

– I think the most important thing is that the decline that we will see now will be lighter than the one we experienced this spring. And it may not have long-term consequences for jobs and growth, which is important to Norges Bank. So I think the perhaps more positive side will dominate a bit, says Dalstø.

She notes that there is still an uncertain situation in the Norwegian economy and therefore she does not believe that Norges Bank is going to make any major changes to the expected interest rate at this interest rate meeting.

– I don’t think they will open to an interest rate hike in 2021, but the path of interest rates may be a bit steeper.

Warns against new interest rate signals

Eika’s chief economist Jan Ludvig Andreassen often advances on questions about interest rates and other development characteristics of the economy.

– I have a completely different picture of reality, he says, and he gives various arguments as to why he thinks interest rates both in Sweden and at the European Central Bank (ECB) will be lowered next year.

– The important thing here is what our neighboring countries do. In Sweden it looks worse and worse. In the euro area, following the so-called dramatic stimulus from the ECB, the market has come to the conclusion that it is too small.

Andreassen is aiming for the ECB to increase support purchases by € 500bn, which he does not think is enough.

– We have no idea how things are going with Brexit, but anyway, even if it is a deal, it will probably be more difficult to trade between the UK and the EU in the new year than it is now.

The chief economist believes that international developments and the risk of a strong appreciation of the crown are arguments against higher interest rates here at home.

– We are in a delicate situation. The best thing now would be to sit as still as possible.

You are concerned about a situation of falling inflation. Norges Bank aims to set the key interest rate so that inflation, that is, the general increase in the prices of goods and services, approaches two percent over time.

– Now it is important not to be too aggressive and give new impetus to the strengthening of the crown and give extremely low price figures in the new year. I’m pretty sure it will come, a price increase of around zero.