Danske Bank venter tre rentekutt i 2027

Danske Bank anticipates three interest rate cuts in 2027, according to their latest report, Nordic Outlook. Central bank Norges Bank is expected to raise rates to 4.25% in May and may hold them steady through the end of 2028, stating they believe the peak has been reached. Norges Bank is "firmly committed to combating inflation," according to chief economist Frank Jullum.

The bank believes lower energy prices and reduced capacity utilization in the Norwegian economy will help curb inflation, potentially resulting in three rate cuts next year and two more in 2028, bringing the rate down to 3.25% by the end of 2028. This compares to Nordea's expectation of only one rate hike in the fall, with no cuts expected before 2028.

Norges Bank raised its interest rate to 4.25% in May and has held steady since. In June, the central bank signaled that it likely "would need to further raise rates at the next meeting." In August, the tone was softer, as price increases fell more than expected during the summer, but the committee felt it was too early to conclude that inflation outlooks had changed significantly.

They may still need to raise rates, according to Jullum. Danske Bank expects core inflation to rise to 3.1% in August, with a risk of overshooting. Core inflation fell from 3.4% in May to 2.7% in June and remained there in July. Jullum notes that food prices and electronics have been particularly deflationary. If core inflation falls, or if Norges Bank's regional networks show weaker prospects, the rate may stay the same in September, leaving only two cuts next year.

The main factor in the inflation numbers, Danske Bank believes, is the lack of signs of second-round effects from higher energy prices - meaning higher electricity and fuel prices haven't trickled down to other prices and wages. Danske Bank expects core inflation of 3.0% this year and 2.4% next year. Wage growth is forecast at 4.4% this year and 3.7% next year, but the bank sees risk "clearly on the downside."

Danske Bank sees the outlook as a "mild stagflation": growth slows, unemployment rises slightly, and price increases remain above the central bank's 2% target. Domestic GDP grew 0.3% in the second quarter, according to Statistics Norway data. Private consumption and business investment disappointed. Public demand and exports pleasantly surprised.

Danske Bank still expects 1% growth in the economy this year, but forecast between 1.5% and 1.7% next year. The labor market "looks somewhat weaker after the summer." The unemployment rate was 2.1% in August, according to figures from the Norwegian Labour and Welfare Administration released last Friday. Danske Bank expects the rate to rise to 2.3% in 2024 and 2.4% in 2025.

The krone has fluctuated with oil and gas prices since June, but has mostly recovered to its level before the summer. Danske Bank attributes this to falling energy prices, as the market prices them in. The bank does not believe higher interest rates would help the krone if the economy slows, but rather would "instead contribute to its weakening."

The krone could stay strong if energy prices remain high, or if energy investors shift money from the Middle East to Norway, as they did from 2001 to 2014.