Norges Bank is widely expected to raise interest rates by 0.25 percentage points to 1.25 percent on Thursday.
"If we do not raise interest rates on Thursday, that would surprise us and affect the market a lot," DNB Markets chief economist Kjersti Haugland told E24.
The tension is more about what the central bank says about the prospect of more tightening.
Norges Bank kept the interest rate unchanged at the May meeting, but at the same time announced that the interest rate would be raised in June.
Strong Norwegian oil investment numbers, optimistic firms, lower-than-expected inflation in May and weaker currency exchange rates are grounds for raising interest rates.
On the other hand, expectations of the international interest rate are clearly declining.
Low Fed and ESB Interest Rate Expectations
Haugland believes that the central bank's interest rate forecasts will be lower than the latter.
– Another thing would be very surprising, she says, pointing out that interest rate expectations in the US and EU have turned in the direction of cuts.
In the market, several cuts in the Fed rate are now expected for this year, and the ESB has further raised interest rate increases over time.
"I believe that Norges Bank will transmit a high probability that the interest rate will rise further in December to 1.5 percent, and that it is suggested that this may be the peak interest rate this time around," Haugland said.
In the previous March monetary policy report, Norges Bank said the interest rate would increase further to 1.75% by the end of 2022.
The DNB economist believes that Norges Bank will wait until December to raise interest rates again after the June meeting in order to analyze developments in the trade war and brexit.
Can it be relevant with interest rate cuts here in Norway?
"It's not a totally unlikely course." It must be rather that they first lift and then cut, but you can never exclude anything, she says.
Nordea Markets, on the other hand, believes that the new interest rate forecast will contain long-term interest rate cuts, possibly in 2022, but emphasizes that the interest rate should rise first and that much can happen before make cutting relevant.
In total, Nordea expects the new interest rate trajectory will give more than a 50% chance of a further increase already in September and then one or two further increases in 2020.
"In the long run, as interest rates rise, interest rates abroad will fall, and Norwegian interest rates will also be reduced," Nordea Markets chief economist Kjetil Olsen told E24.
The exchange rate of the crown becomes crucial
One important reason why interest rates can be raised here at home, even by our trading partners, is the persistently historically weak currency exchange rate.
– The currency exchange rate seems completely immune to the differences in interest rates abroad, says Haugland. The crown has remained relatively stable at just under 9.80 against the euro recently, despite rising expectations of rising here at home and retreating. It is also considerably weaker than the central bank itself expected.
"There's a lack of interest in Norwegian crowns now. The picture of risk is dark now and then Norwegian crowns is not very attractive, she says even more.
"But if Norges Bank is too aggressive, at the same time as the BC and the ESB, it can be risky.
Nordea Markets also believes that the exchange rate of the crown will be significant for the fixing of the interest rate.
– Unless the world collapses, it is the exchange rate of the crown that is most important for the adjustment of the interest rate going forward, says Olsen.
– We said that the new trajectory of the interest rate will increase further after June, but much will be decided on how the exchange rate of the crown reacts, he continues.
Olsen also emphasizes that the exchange rate of the currency so far has changed little.
"With the climate we have in the financial markets, there are few who want to take a lot of risk and the Norwegian kroner is considered a risk-sensitive currency," says economist Nordea.
If Norges Bank raises interest rates and signals tightening, both the DNB Markets and Nordea Markets believe the crown will strengthen somewhat, albeit temporarily.