(Bloomberg) -- Analysts at Nordea Bank Abp forecast Norway’s monetary easing will be over after just three quarter-point interest-rate cuts this cycle as policymakers encouraged by the economy holding up are keen to avoid further weakening of the krone.
Norges Bank will likely reduce its key rate twice next year and once in 2026 to 3.75%, the Nordic region’s largest lender projected in its new economic outlook on Wednesday, only half of what’s indicated by consensus estimates. A survey compiled by Bloomberg last month, showed the median analyst view is for a terminal rate of 3%.
The level estimated by Nordea would be higher than where the Riksbank of neighboring Sweden stands now, highlighting the contrast between the Norwegian policymakers and most of their rich-world peers who have started easing or are on the verge.
“The trend in the krone exchange rate will probably play a key role for how much room Norges Bank will have to set interest rates,” Nordea’s chief economist for Norway, Kjetil Olsen, said in the report. “With inflation well above 2% for a long time, continued low unemployment, expanding economic growth in Norway, rising home prices, high wage growth and a weak krone, there are good reasons to ask whether the Norwegian economy needs a lot of rate cuts.”
Norges Bank’s own latest interest-rate outlook from June indicates key rate at 2.8% in 2027. The weakening of the krone in past months is adding uncertainty about the prospect for price developments which the rate-setters underlined last month, saying that the 15-year high level of 4.5% will be kept “for some time ahead.”
In Sweden, Nordea expects the Riksbank’s policy rate to “fluctuate around 3%, which we consider a neutral and normal policy rate level” in the long-term, it said. The Swedish central bank and its peers will probably react faster to any indications of a pickup in inflation, suggesting the key rate will be higher in the coming years than before the pandemic, it added.
--With assistance from Niclas Rolander and Sanne Wass.
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