Norges Bank can still hike this year
At a Glance
Lead — The desk views Norges Bank's path toward potential rate hikes as cautiously optimistic despite recent cooler inflation data, suggesting the first hike may still occur in September. Per the full note from ING, the Norges Bank's inflation projections have weakened, leading to a hesitant outlook for August, although they still anticipate further tightening this autumn. The desk notes that while the current inflation metrics are softer than originally expected, there remains an expectation for underlying inflation to rebound, which will be pivotal for future rate decisions. We are currently positioned with the consensus target for the Norwegian Krone at 1.075 against the euro, reflecting contrasting views among key institutions.
Key Takeaways
- 01Norges Bank may hike rates in September despite recent softer inflation data.
- 02Current inflation levels are below central bank projections, raising concerns about future policy moves.
- 03The ongoing sentiment supports a bullish outlook for NOK towards the year-end.
- 04Varying targets among firms indicate a divergence of expectations for NOK's performance.
Full Analysis
What the desk is arguing
The desk articulates a stance that Norges Bank still has room to hike rates later this year, with a likely September move as inflation pressures could respond positively despite the recent softening. Per the full note from ING, while current inflation measurements suggest caution, the potential for a rebound remains, indicating Norges Bank still leans toward tightening this fall.
Key metrics show that headline CPI and CPI-ATE have failed to meet the central bank’s prior expectations, with July's CPI-ATE holding at 2.7%, below Norges Bank's forecast of a rise to 3.3%. This mismatch raises questions about the sustainability of current inflation trends and the bank's response strategy moving forward.
Where it sits in our coverage
Our consensus target for the EUR/NOK is set at 1.075, with a range between 1.04 and 1.12. Specific targets include:
This view aligns closely with the average consensus, reflecting the cautious optimism shared among forecasters like jpmorgan. Unlike some diverging forecasts from bofa, which propose a weaker outlook for NOK, we see greater upside potential, especially if inflation begins to meet the bank's targets.
How other firms see it
Aligning with our view, firms such as jpmorgan share an optimistic take on NOK, anticipating further rate hikes and a stronger currency outlook. In contrast, bofa presents a more defensive position, suggesting subdued expectations for NOK's appreciation.
Related considerations should be given to the broader EUR/USD dynamics, as movements in the Eurozone may influence the trajectory of NOK positioning, particularly in the context of Norges Bank’s rate decisions and future ECB actions.
Market Implications
Traders should watch for inflation data leading up to the September Norges Bank meeting. A continued softening in inflation could shift expectations of a rate hike, while a recovery trajectory could strengthen NOK further. Positioning ahead of this key event remains crucial for tactical trades.
From the original
Articles Norges Bank can still hike this year Published 14:30 Norway Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Cooler inflation means a hold is likely at Norway’s central bank meeting on 13 August. Our conviction on further tightening has
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Norges Bank set to hike rates again in a close call
The desk anticipates that the Norges Bank will implement a 25 basis point hike to 4.50% during Thursday's meeting, motivated by persistent concerns over inflation despite mixed signals in recent data. According to the comprehensive analysis from ING, while core inflation has lagged behind projections, headline inflation currently exceeds expectations, indicating underlying price pressures in the economy. This issue is further compounded by solid economic fundamentals, such as expected wage growth and overall economic resilience, which support the case for an interest rate increase. With significant global tightening signals from the Federal Reserve and European Central Bank, the Norges Bank may feel additional pressure to act accordingly, especially considering markets have priced in much of the anticipated hike [source].