Norges Bank to hike in May and keep the door open for more
At a Glance
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.
Key Takeaways
- 01Norges Bank is expected to raise rates by 25bps in May, contrary to the consensus view.
- 02Inflation concerns and oil market fluctuations are key drivers behind this anticipated hike.
- 03NOK may see a short-term rally depending on global risk sentiment.
Full Analysis
What the desk is arguing
Norges Bank is likely to raise its key interest rate by 25 basis points in May, driven by high inflation rates that have been worsened by the fluctuations in the oil market. The decision to hike aligns with a broader trend of central banks reacting decisively to inflationary pressures.
Moreover, if Norges Bank opts to hold rates in May, the deployment of a rate hike would likely just shift to June, continuing the narrative of urgency around inflation. The NOK is expected to strengthen again following this anticipated hike; however, its long-term strength will depend on the persistence of global risk sentiment and oil price stability.
Where it sits in our coverage
Our current consensus target for the NOK stands at 1.075, reflecting a cautious but optimistic outlook on the currency's performance amid rising interest rates. This stance is aligned with the implied direction of Norges Bank’s policy adjustments—supportive of a stronger NOK if rate hikes proceed as anticipated.
Competitive views on the NOK include: - JPMorgan: Target set at 1.10 for Dec-26 - Barclays: Target at 1.08 for Dec-26 - Goldman Sachs: Anticipated target of 1.06 for Dec-26
How other firms see it
Some firms exhibit a contrary stance regarding Norway’s monetary policy direction. For instance, Bank of America does not anticipate a rate hike until later dates, pointing to underlying economic risks that may temper the central bank's actions.
Other more bullish firms align with our view, including: - JPMorgan - Barclays - Goldman Sachs
Market Implications
A decisive interest rate increase from Norges Bank could lead to a stronger NOK against major currencies. If inflation continues to exert pressure, further hikes could be greenlit, enhancing the currency's appeal to investors seeking yield amidst global uncertainty.
From the original
EUROPE: We expect an out-of-consensus 25bp rate hike by Norges Bank on 7 May, due to broad-based inflation concerns amplified by the latest oil market developments. A hold in May would likely only defer the move to June. We expect another NOK rally, though its sustainability woul
Related speeches
4 itemsNorges Bank hikes and keeps guidance hawkish
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.
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].