Norges Bank set to hike rates again in a close call
At a Glance
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 .
Key Takeaways
- 01Norges Bank is expected to hike interest rates to 4.50% amid mixed inflation signals.
- 02Headline inflation at 3.3% is above projections, countering weaker core inflation metrics.
- 03Strong domestic conditions and wage growth support a proactive tightening approach.
- 04The market has largely priced in this hike, potentially moderating responses in EUR/NOK.
Full Analysis
What the desk is arguing
The desk expects a 25 basis point increase in interest rates to 4.50%, based on a careful assessment of Norway’s mixed inflation signals. Per the full note from ING, despite core inflation undershooting targets, the headline rate remains above forecast levels at 3.3%, which indicates persistent inflationary pressures that the central bank cannot ignore.
Data suggests that while the underlying CPI has showed signs of easing, solid domestic conditions, reflected in sustained wage growth and favorable regional output, reinforce the rationale for a tightening bias. This backdrop positions the Norges Bank towards a proactive approach in rate adjustments, potentially influencing the EUR/NOK pair as traders react to the market outlook.
Where it sits in our coverage
The desk’s target remains in line with our current consensus, with a key interest rate target of 4.50% for the end of September. Notable firms in our coverage include: - jpmorgan: targeting 4.60% by Dec-26 - bofa: anticipating a 4.40% target - db: projecting a 4.50% year-end target.
This supportive view aligns closely with the expectations from jpmorgan, which shares a similar target outlook, while bofa appears more conservative, indicating a lower bound in expectations which could demonstrate caution against an overly aggressive tightening scenario.
How other firms see it
Aligned firms, including jpmorgan and db, share a consensus of tightening expectations while bofa diverges, holding a more dovish outlook. This differentiation hints at potential market volatility based on monetary policy expectations moving forward.
Looking ahead, movements in paired currencies such as EUR/NOK will be closely tied to the decisions emerging from the Norges Bank and the eurozone monetary policy, reflecting broader concerns about inflation and interest rates across Europe and the US.
Market Implications
Watch for the EUR/NOK pair to react to Norges Bank's decision, particularly if the hike leads to greater than expected upward movement. Also, monitor international developments as the Fed and ECB's moves may influence local sentiment and positioning in the FX market.
From the original
Articles Norges Bank set to hike rates again in a close call Published 15:58 FX Norway Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Norges Bank faces a finely balanced decision, but we expect a final 25bp hike to 4.50% on Thursday. While core infla
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