Preview: Norges Bank December Meeting Kyrre Aamdal, DNB Markets 5 December 2017

Transcription

1 Preview: Norges Bank December Meeting Kyrre Aamdal, DNB Markets 5 December 2017

2 Preview: Thursday 14 December at 10:00 CET Norges Bank s Monetary Policy Meeting September meeting: Sight deposit rate unchanged at 0.50%, as widely expected Steeper rate path: Rate path unchanged until Q2 2018, slightly raised thereafter current assessment of the outlook and the balance of risks suggests that the key policy rate will remain at today's level in the period ahead (Unchanged from June) This time we expect Norges Bank to: Keep policy rates unchanged Raise interest rate path, signalling rate hike early 2019 We expect Norges Bank to keep policy rate at 0.50% until September Norway: Key policy rate Percent Actual MPR 3/17 DNB Markets Source: Thomson Datastream/Norges Bank/DNB Markets page 2

3 International development Growth and inflation prospects GDP-growth: In general small differences between Norges Bank s forecasts and Consensus. Consensus 2018-forecasts little changed from September to November, Norges Bank may adjust marginally upwards Inflation: Norges Bank may adjust Swedish inflation downwards. Assessment: Will probably not affect the rate path Table Economic Forecasts NB Sep CF Sep NB Sep CF Sep CF Nov CF Nov CF (Nov - Sep) GDP-growth USA Euro zone UK Sweden China Trading partners Inflation USA Euro zone UK Sweden China Trading partners Source: Norges Bank (MPR 1/17)/Cons ens us Econom ics/dnb Markets page 3

4 Foreign Forward Interest Rates 3m Forward Not Much Changed From the week before Norges Bank s September meeting, foreign FRAs for 2017 to 2020 are almost unchanged. The USD curve is higher, while SEK forwards are down. Since September 2y10y curves have flattened, most for USD with 10 bps Major trading partner currencies: EUR, USD, SEK and GBP Assessment: Foreign rates should not move rate path much Major trading partners: 3m Forwards, % Dec-17 Dec-18 Dec-19 Dec-20 Dec Changes in 3m forwards for Norway's trading partners Dec-17 Dec-18 Dec-19 Dec-20 Dec Sep Dec Sep-17 Source: DNB Markets Source: DNB Markets page 4

5 I-44 and IR Differentials From Q1 2017: Norges Bank's estimates Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 IR Differential Source: Norges Bank/DNB Markets I-44 (rha) Interest rate differentials The spread Has Not Fallen Much Also 3m NOK forwards have fallen and the spread has narrowed a few basis points. Lower spread than expected should in isolation imply a weaker NOK 0.00 NOK: 3m Forw ards, change in %- points in spread foreign currencies Dec-17 Dec-18 Dec-19 Dec-20 Dec Sep-17 til 01-Dec-17 Source: DNB Markets page 5

6 Foreign Exchange Norway: I-44 lower than forecasted So far in Q4 I-44 has been 2% higher than forecasted by Norges Bank (in September) and current level is 5% above the Q4 forecast. The oil price was expected to be just below 55 USD/bbl in Q4. Will contribute to increase rate path 115 Norway: Import-weighted NOK (I-44) Nov-16 May-17 Nov-17 May-18 Nov-18 Actual NB MPR3/17 So far this Q Current Source: Thomson Datastream/Norges Bank/DNB Markets page 6

7 Money market premiums and bank margins 3m NIBOR has been low So far in Q4 3m Nibor has been averagely 0.80%, vs Norges Bank s forecast of 0.85%, due to lower money market premiums Lower risk premiums from abroad has been the main contributor m Nibor per cent 0.50 Jan-16 Jan-17 Jan-18 Jan-19 Actual Market PR3/17 Source: Thomson Datastream/Norges Bank/DNB Markets Norway: 3m NIBOR Per cent Sep-16 Jan-17 May-17 Sep-17 Premium from EURUSD CBS Risk premium in LIBOR NOK OIS and basis Premium on USD Kilde: Thomson Reuters/DNB Markets page 7

8 Money market premiums and bank margins Higher bank margins Bank margins have increased, partly because new mortgages rates have been steady while 3m Nibor has fallen. Stronger regulation has contributed to tighter credit standards Interest rates Per cent 0.0 Nov-14 Nov-15 Nov-16 Nov-17 New Mortgages 3m NIBOR Policy rate Source: Thomson Reuters/Statistics Norway/DNB Markets Credit standards, households Actual developments, projection for next quarter -1.5 Q Q Q Q Q Q Rate margin Next 3 months Source: Norges Banks utlånsundersøkelse/thomson Datastream/DNB Markets page 8

9 Capacity utilisation Norway: Capacity Utilization Slightly Higher Regional network report: Slightly higher capacity utilisation Retail sales has slowed. Confidence normal to high Home price growth has slowed so far this year with falling prices since April. Household credit growth still above income growth, but has fallen recently LFS unemployment has dropped, but employment growth slow. Registered unemployment suggest further improvements in labour market. Manufacturing production is improving, but several sectors lag. 2 Norway: Macroscore Average of sub indices 4 Reg. network. Change Last 3m and next6m. Scale -5 to +5. Prod. rha Nov-11 Nov-13 Nov-15 Nov-17 Total Companies Households Source: DNB Markets Apr-08 Apr-10 Apr-12 Apr-14 Apr-16 Apr-18 Production Employment Source: Norges Bank/DNB Markets page 9

10 Capacity utilisation GDP-growth in line with expectations Mainland GDP growth was 0.6% q/q in both Q2 and Q3. The outcome was in line with Norges Bank s estimate for both quarters. Statistics Norway lowered forecast for mainland growth in 2017 by 0.1pp to 1.9%, but raised next year by 0.4pp, partly due to higher petroleum investments Norges Bank forecasted Mainland GDP growth to 2.0% in 2017 and 2018 GDP-revisions along with weaker Q4 points towards lower 2017-growth Assessment: Capacity utilisation small positive effects on the rate path Norway: Mainland-GDP Q Q Q %, q/q, sa., lha %, y/y, sa., rha Source: Statistics Norway/Thomson Datastream/DNB Markets Norway: Unemployed Per cent of labour force 0.0 Nov-07 Nov-09 Nov-11 Nov-13 Nov-15 Nov-17 Reg.+measures LSF Reg. Source: Thomson Datastream/DNB Markets page 10

11 Inflation Norway: Inflation in line with expectation Core inflation has been low, but in line with Norges Bank s expectations Inflation expectations well anchored. The implicit real wage expectations are roughly 0.5% in the 5y horizon Norway: Core inflation Actual (solid) vs Norges Bank's forecast (dotted) y/y, per cent Forventet inflasjon om fem år Partene i arbeidslivet Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 CPI-ATE Source: Statistics Norway/DNB Markets 1.5 Q Q Q Q Q Q Arbeidsgivere Arbeidstakere I alt Kilde: Thomson Datastream//DNB Markets page 11

12 Preview: Thursday 14 December at 10:00 CET Summary Meeting on Wednesday 13 December with press statement due at 10:00 CET on Thursday 14 December. Press conference starts 10:30 CET Global outlook little changed, but inflation outlook dampened Global interest rates should not affect rate path much The drop in money market premiums are counteracted by higher bank margins, but might on the margin add to higher rate path Capacity utilisation may contribute positively to rate path The inflation outlook has not been changed to any large extent High household credit growth, but housing prices are falling. Reduced need for leaning against the wind Major question: How much will recent weakness of the NOK lift the rate path? page 12

13 Preview: Thursday 14 December at 10:00 CET Assessment Norges Bank has forecasted inflation to 1½% over the next years ending at 1.7% in Long-term forecasts may be increased to 2.0%, but still be well below target Major reason to increase inflation forecast and capacity utilisation is the weakness of the NOK. We think Norges Bank will be careful to put the weak NOK in play and expect Norges Bank to be cautious to signal rate hike much earlier than the ECB We expect a rate path indicating the first rate hike in January or March We hence expect rate path to be increased 11 bps in Q and 17 bps as average for For 2020 we forecast 30 bps increase in the rate path Norway: Policy rate Norges Bank's rate paths, quarterly average, % 0.00 Q1 17 Q1 18 Q1 19 Q1 20 PR3/17 Forecast MPR 3/17 Source: Thomson Datastream/Norges Bank/DNB Markets page 13

14 DNB Markets Macro Research Contact details Kjersti Haugland Chief Economist, Euro area / kjersti.haugland@dnb.no Jeanette Strøm Fjære Economist, Norway and Sweden / jeanette.strom.fjare@dnb.no Ole A. Kjennerud Economist, China and Japan / ole.kjennerud@dnb.no Knut A. Magnussen Senior Economist, USA, UK and Brazil / knut.magnussen@dnb.no Magne Østnor FX Strategist / magne.ostnor@dnb.no Marit Øwre-Johnsen FX Analyst / marit.owre-johnsen@dnb.no Kyrre Aamdal Senior Economist, Norway, Sweden, interest rates / kyrre.aamdal@dnb.no page 14

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