Consumer and Economy | Hold your breath: - Very important for Norges Bank

(now) Thursday at 2.15pm there is an interest rate meeting at the European Central Bank (ESB).

“We and the market believe that there will be a rate cut in the eurozone on Thursday, with a 99 percent probability,” Sarah Medgaard, chief economist at Handelsbanken, tells Netafsen.

This leads to a historic reduction in interest rates: It has been five years since the European Central Bank cut interest rates.

She explained that the inflation rate in the eurozone is now 2.6, so “they are approaching the target before both the United States and Norway.”

Warnings: – There is no green light for Norges Bank

The ECB cutting interest rates does not give the Norwegian Bank the green light to do the same, warns Midtgaard – for the following reasons:

– Norges Bank is now closely monitoring what our trading partners are doing, namely the US Central Bank (Fed), Sweden's Riksbank and the Bank of England – as well as the European Central Bank.

The interesting thing is how much this affects the interest rate and the Norwegian krone:

– The Norwegian Central Bank will not cut until the Fed does, so we do not believe that the cut announced in September will bear fruit. Therefore, these interest rate cuts will affect the exchange rate. Medgaard says that increasing the interest rate differential, in favor of Norway, is likely to strengthen the value of the krone.

– Not many discounts

On Wednesday you have to go out with 11.48 For one euro and 10.56 The krone per dollar, so the krone has weakened somewhat after a steady rise in May.

According to Sarah Midtgaard, tomorrow's news could give the krona wind in its sails.

– But since the level of wages in the eurozone is “very high,” there will not be many cuts there this year.

– Wage growth will not return to normal in the EU region until 2026, confirms ESB's chief economist, Philip Lane, for Financial Times.

– The Central Bank was clear that there would be cuts. However, Friday's inflation numbers were slightly higher than expected, both for overall and core inflation, says SpareBank 1 SR-Bank chief economist Kerry M. Knudsen to Nettavisen.

This means that there is now real tension about whether there will actually be cuts, and in any case the risk is increasing that there will be only one cut this fall, he said.

– Incredibly important for Norges Bank

It is believed that there is no longer a guarantee of lower interest rates in Europe.

– For Norges Bank, the interest rate decision in Europe is a very important input ahead of the interest rate meeting on 20 June and what it determines about interest rate developments for Norway throughout the autumn.

– Why?

– The Eurozone is our most important trading partner, and lowering interest rates more slowly here is an argument for lowering interest rates more slowly in Norway.

May is in the wind

Interest rate and currency strategy Nils Christian Knudsen from Handelsbanken told Nettavisen The market tailwinds in May were due to several factors:

– US inflation numbers for April were better than expected, as the Riksbank announced interest rate cuts, and the European Central Bank is likely to do so as well. Many companies are going as far as they can, despite interest rate and currency uncertainty.