(Reuters) – From the U.S. Fed to the Reserve Bank of Australia, monetary authorities across the developed world are embarking on a cycle of interest rate cuts to head off the threat of recession. With one lonely exception: Norway is still in rate-hike mode.
The Norges Bank has kept tightening policy even as other G10 central banks have crumbled in the face of worsening economic growth and a market outcry for lower interest rates. Having upped rates in June for the third time in a year, it is expected to do so at least once more.
The move could come on Thursday – a slim majority of analysts polled by Reuters expect a 25 bps hike from 1.25% – or in December.
In this period, other G10 banks are expected to either cut rates, or in the case of Sweden, to stay on hold, money markets show https://fingfx.thomsonreuters.com/gfx/editorcharts/CBANK-RATES-GLOBAL/0H001QX7Q8H4/index.html.
Globally too, Norway is an outlier – only Kazakhstan and Georgia have also recently hiked rates. Across emerging markets, as in the G10, rate cuts dominate: Russia, Turkey, Ukraine and Vietnam are among those to recently ease policy.
One reason for Norway’s hawkishness is that a massive oil investment splurge has lifted economic growth to around 0.7% a quarter, while inflation is running above 2%.
That’s cushioned it from headwinds posed by a slowing global economy, says Richard Falkenhall a strategist at SEB in Stockholm. He adds: “The influence from the global economy has not been felt. There are still all the signs of a strong economy.”
Norway unlike other oil exporters is also resilient to price fluctuations, as it funnels its excess energy revenues into its huge sovereign wealth fund, drawing on those reserves when needed.
But its next hike is widely expected to be the last in this cycle – the central bank last week noted companies expect weaker growth ahead, partly as global factors start to weigh.
Nevertheless, given Norway’s cycle of hikes, the crown’s weakness is baffling; it has depreciated 3% versus the dollar this year and is flat against the euro. On a trade-weighted basis, it’s roughly 10% undervalued, Falkenhall estimates. It remains to be seen if another rate hike will give it a lift.
(Reporting by Sujata Rao and Saikat Chatterjee; Editing by Hugh Lawson)