Nordea Markets: Ingen rentekutt før 2028

Norges Bank is not meeting its inflation target and is increasing its focus on bringing inflation down, according to Kjetil Olsen, chief economist at Nordea Markets, in the latest Economic Outlook report. Inflation in Norway has been well above the central bank's target of 2% over the past five years, due to low unemployment. Nordea Markets predicts that the bank will raise rates once more in the autumn and will not begin cutting rates until they are confident that inflation is approaching the target.

The decision to raise rates is expected to come in 2028, the economists believe. The central bank's policy rate is currently at 4.25%, and the bank had set it at over 4.5% since June, anticipating it would remain above 4.5% by the end of the year. The bank opened the door to two more rate hikes in 2026. By the end of 2026, the policy rate had reached its highest level of 4.5% before being cut to 4% between June and September last year.

Price growth accelerated in the latter part of last year, contrary to the trend, said Olsen in the report. The bank then raised rates to 4.25% in May this year. If our forecasts prove accurate, there has been no progression in bringing down price growth over the past two years, states Olsen. Nordea Markets expects the bank to tolerate a somewhat weaker performance in the Norwegian economy, with rising unemployment.

They estimate that this will help keep wage growth in check. Together with the strength of the krone we have behind us, this will help keep price growth low. However, it will still take time before we reach 2%, states the chief economist. By 2028, they anticipate growth picking up again, mainly as a result of a moderate reduction in rates as inflation approaches 2%, Olsen said.

It has long been expected that Norges Bank would lower the interest rate, rather than raise it. However, amid uncertainty in the Middle East and surging energy prices, there were talk of rate hikes again. Suddenly, unexpectedly low inflation figures appeared in the summer. However, Nordea Markets does not believe that the bank will pull back entirely.

For one thing, other indicators show underlying price growth, such as trimmed mean inflation, not showing any signs of easing, but rather remaining around 3.5%, Olsen said. The Norwegian krone strengthened markedly earlier this year, partly due to higher oil prices and purchases of the currency by the Norges Bank. After hopes for a peaceful resolution between the US, Israel, and Iran weakened oil prices, the krone fell again.

Higher levels of conflict and the subsequent rise in oil prices sent the krone back up in the summer. The conflict in the Middle East is preventing large volumes of oil and gas from being shipped through the critical Hormuz Strait south of Iran. Olsen expects the krone to weaken somewhat against the euro by the end of the year. Uncertainty surrounding the Iran conflict - and thus oil prices and the krone - is significant.

A lower oil price will isolate the krone. Similarly, krone sales by Norges Bank will also weaken the krone, states Olsen in the report.