A stronger krona can lead to faster interest rate cuts, Handelsbanken believes. But the unstable course creates headaches, NHO believes.
According to Handelsbanken, the krona exchange rate is now much stronger than Norges Bank’s previous forecast. Photo: Gorm Kallestad / NTBPublished:
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Price inflation in Norway is still well above Norges Bank’s target of around 2%. There will be a new update from SSB on Wednesday.
Øystein Dørum, chief economist at NHO, believes that the krona contributes strongly to high inflation.
– The krona exchange rate is a headache for the central bank, he tells E24.
Dørum explains that one third of the consumer price index is the consumer price index. The consumer price index describes the development of prices of goods and services requested by private households living in Norway. consists mainly of imported goods. The prices of these goods are determined partly by off-world price growth and partly by the krona exchange rate.
– Weaker exchange rates increase costs for companies importing from abroad. To maintain profitability, companies will pass on the increase in import prices to retail prices for consumers, Dørum writes in the NHO weekly report.
NHO Chief Economist Øystein Dørum. Photo: Ole Berg-Rusten / NTB
– I cannot relaunch without further ado
The Norwegian krone strengthened to around NOK 11.35 per euro. At the beginning of November at one point you had to pay 12 NOK.
– It is difficult to manage the krona exchange rate. It strengthened slightly after December’s interest rate hike, but considering activity, employment and unemployment it means Norges Bank can’t simply keep raising interest rate to strengthen the krona, says boss NHO economist.
In December, Norges Bank surprised several economists with an interest rate increase of 0.25 percentage points to 4.5%.
– If cost growth remains high or the krona becomes weaker than expected, price growth could remain high for longer than we currently expect, Norges Bank wrote in its December interest rate decision.
It can provide faster interest rate cuts
The Norwegian price increase ended November at 4.8%. An increase from 4% in October.
However, Norges Bank is more interested in core inflation, which subtracts changes in taxes and energy prices. It ended at 5.8%. Down from 6% in October.
Handelsbanken senior economist Sara Midtgaard writes in a morning report that she expects core inflation to fall to 5.6% in December. In comparison, DNB Markets expects 5.5%.
Senior economist at Handelsbanken, Sara Midtgaard. Photo: Adrian Nielsen
– We expect the increase in imported prices to begin to decline more sharply this winter. This is also highlighted as an important factor behind the announced price cuts on food products. Global inflationary impulses have weakened significantly, even converted into Norwegian kroner, he writes.
According to the senior economist, the krona exchange rate is now clearly stronger than Norges Bank expected.
– There is therefore reason to believe that core inflation will gradually fall below Norges Bank’s estimate in the future, which supports earlier interest rate cuts than Norges Bank’s latest interest rate path shows.
– We believe that Norges Bank will wait until after the summer holidays and that the first cut will take place in August and we expect a total of three cuts in the second half of the year. In comparison, Norges Bank’s recent interest rate path shows only one rate cut, which will not be fully indicated until the end of the year, Midtgaard writes.
2024-01-08 15:58:54
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