Norges Bank hikes and keeps guidance hawkish
At a Glance
The desk views the Norges Bank's recent 25 basis point hike to 4.25% as a clear signal of its commitment to combating inflation, which is now seen as a broader concern beyond geopolitical tensions. Per the full note from ing-think, while a hold is anticipated in June, the central bank's hawkish guidance suggests the possibility of another rate increase by year-end. This aligns with our bearish outlook on EUR/NOK, as we expect the krone to strengthen against the euro in the coming months. The current consensus among firms indicates a target range for EUR/NOK that supports this view, with no immediate calendar events expected to disrupt this trajectory.
Key Takeaways
- 01Norges Bank's hike signals commitment to tackle inflation
- 02Guidance remains hawkish with potential for another rate increase
- 03Expectation of a bearish trend for EUR/NOK in the coming months
Full Analysis
What the desk is arguing
The Norges Bank's recent interest rate hike to 4.25% signals an aggressive stance against mounting inflation. This move surprises many market participants, reflecting a nuanced understanding that current inflationary pressures are rooted in broader economic conditions, not purely geopolitical factors.
While a pause may be more likely in the coming months, the central bank's continued hawkish guidance suggests that further tightening remains a possibility. The implications for EUR/NOK are significant, as we anticipate a bearish trend in the pair over the coming months amid this tightening cycle.
Where it sits in our coverage
Our consensus target for EUR/NOK is set at 1.075, with a firm spread between 1.04 and 1.12. This view aligns with the Norges Bank's recent hawkish stance, suggesting that there may be downward pressure on the Norwegian krone against the euro.
Notably, firms such as Barclays and JPMorgan are projecting targets around this consensus. For instance, Barclays has a target of 1.08, while JPMorgan is slightly more conservative at 1.10. The alignment with our target reflects a general market expectation of a weaker euro against the krone:
How other firms see it
Analysts from goldmansachs and bofa offer contrasting views. goldmansachs maintains a bullish outlook on EUR/NOK, predicting a target of 1.12, diverging from the consensus. In contrast, bofa takes a more cautious stance, projecting a lower target of 1.04 for the same tenor.
This divergence emphasizes the varied interpretations of the Norges Bank's hawkish guidance and its implications for the currency pair moving forward.
Market Implications
The Norges Bank's latest rate hike and hawkish guidance suggest a challenging environment for the euro against the Norwegian krone. Market participants may adjust their positions in anticipation of continued volatility in EUR/NOK as inflation remains a focal point.
From the original
EUROPE: Norway’s central bank surprised markets with a 25bp hike to 4.25% today, stressing that inflation concerns are broader than the war. We now think a hold is more likely in June, but risks remain on the hawkish side, with guidance still pointing to another potential rate in
Related speeches
4 itemsNorges Bank to hike in May and keep the door open for more
The desk anticipates a 25 basis point rate hike from Norges Bank on May 7, driven by persistent inflationary pressures and recent developments in the oil market. Per the full note from ing-think, this hike is viewed as necessary to address broad-based inflation concerns, and a delay would merely push the decision to June. The desk expects this move to trigger another rally in the Norwegian krone (NOK), although the longevity of this rally will be contingent on global risk sentiment remaining robust. With no high-impact events on the calendar in the next month, the focus will remain squarely on Norges Bank's actions and statements.
Norges Bank hikes and keeps guidance hawkish
The recent decision by Norges Bank to hike rates and maintain a hawkish guidance underscores a robust approach to inflation management. This aligns with the broader market expectations of continued monetary tightening throughout the region.
Ida Wolden Bache: Policy rate raised to 4.25 percent
The desk interprets Norges Bank's recent policy rate hike to 4.25% as a clear signal of the central bank's commitment to combating inflation, which has remained stubbornly high in the region. Per the full note [source], Governor Ida Wolden Bache emphasized the need for continued vigilance against inflationary pressures, suggesting that further tightening may be on the table if economic conditions do not improve. This rate adjustment aligns with our expectation of a hawkish stance from Norges Bank, particularly in light of recent economic data indicating persistent inflation above the central bank's target. With no high-impact events on the calendar in the next 30 days, the market will likely focus on the implications of this rate hike and its impact on the NOK's valuation against major currencies.
Riksbank likely to hold but hawkish risks are growing
The desk anticipates that the Riksbank will maintain its current interest rate on May 7, while acknowledging a growing risk of a hawkish shift in tone. Per the full note from ing-think, the potential for a rate hike in 2026 hinges on sustained high energy prices and further tightening from the European Central Bank (ECB). This backdrop suggests a cautious approach from the Riksbank, yet the market may need to prepare for a more aggressive stance if inflationary pressures persist. Our analysis aligns with the downward trajectory for EUR/SEK into year-end, reflecting a broader sentiment in the FX market.
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