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 .
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
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.
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.
Risks to this view
If economic data trends continue to show weakening inflation signals or if concerns over global growth escalate, this could prompt a reconsideration of tightening policies, potentially leading to a delay in rate hikes by Norges Bank. Additionally, any geopolitical events that disrupt energy prices could shift the inflation outlook significantly.
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 inflation has undershot projections, headline inflation remains above forecast and domestic conditions are still firm. Markets already price in most of a hike, reducing the cost of tightening.
EUR/NOK may face more pressure before any recovery Francesco Pesole Norges Bank in Oslo Mixed inflation signals Consensus is evenly split on whether Norges Bank will hike interest rates again at the 24 September meeting. We expect a 25bp hike to 4.50%, but understand why this is a close call. Inflation has undershot Norges Bank’s expectations over the summer, with underlying CPI (CPI-ATE) easing to 2.7% in June and July before rebounding to 3.0% in August, still below the central bank’s 3.3% projections for all three months.
By contrast, headline inflation is now 0.3pp above Norges Bank’s projections, at 3.3%. The June rate path had already pointed to a likely hike to 4.50% in September, with rates then expected to stay broadly unchanged through mid-2027. Higher headline, lower underlying inflation Source: ING, Norges Bank, Macrobond "> Source: ING, Norges Bank, Macrobond Overall backdrop still favours tightening While price dynamics were more benign over the summer, we think Norges Bank's inflation concerns remain.
Higher energy prices should continue to support headline CPI and could still feed through more broadly. Economic conditions remain solid, according to Norges Bank's regional survey, with wage growth expected to stay elevated at 4.0% in 2027. That’s a backdrop that can tilt the balance towards insurance tightening even if data has not proven particularly worrying.
With the Federal Reserve and European Central Bank both signalling another hike by the end of the year, the external pressure is also on the hawkish side. One final reason why we think Norges Bank will hike is that markets are pricing in 16bp for this meeting. The cost of disappointing expectations may outweigh that of tightening too early in a rather healthy economy.
Anyway, should they opt for a hold, we expect strong hints of another hike by year-end. Extra support for NOK, but oil remains key Market pricing beyond September is nowhere as aggressive as for the Fed or the ECB, with 38bp priced in total for January and a flat curve for the remainder of 2027. As a result, Norges Bank faces little pressure to lift its rate projections materially.
We nonetheless expect updated forecasts to show some probability of a further fourth-quarter rate hike, while the statement should continue to leave the door open to additional tightening. Our baseline is that this September move is the last one for this cycle. A hike should support NOK’s recent strength.
We maintain a near-term EUR/NOK target of 10.70, with potential to reach 10.60. That said, our end-4Q target of 10.60 is beginning to look somewhat too bearish. We now expect another ECB hike in December, and our commodities team’s baseline scenario is for a sharp fall in oil prices from 4Q: a backdrop more consistent with EUR/NOK returning to 11.00.
Norway Norges Bank NOK Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Francesco Pesole FX Strategist Francesco is an FX Strategist and has been with the firm since May 2019.
His main focus is on the G10 space and, in particular, on European and commodity currencies. He began his career at Credit… In this article Mixed inflation signals Overall backdrop still favours tightening Extra support for NOK, but oil remains key
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