Norwegian economy has found itself in a situation where textbook economic theory gives way to hard reality.
Hawkishness over Oslo. Norges Bank goes hard
Although the head of Norges Bank, Ida Wolden Bache, knows well how unpopular high interest rates are, her message is clear and concise: price stability is a priority.
“Decisions are based on analyses, research and discussions in the monetary policy committee. And all of this is based on the task entrusted to us, which is to ensure low and stable price growth. Currently inflation is higher than that goal,” she said.
The central bank does not intend to bend under pressure from trade unions that loudly demand a halt to the cycle of hikes.
“We expect that the hawkish stance of Norges Bank will favor the NOK rate. We anticipate a rate hike on May 7 (the market already prices in 16 pb), because some members were ready for a hike already in March, and the minutes from the meeting indicated concerns about inflation even before the war’s effects appeared,” ING Think analysts said.
Bache openly admits that too low rates could lead to a situation where prices escape control. In the long run such a situation would hit the economy with double force.
Meanwhile the atmosphere on the EUR/NOK pair is clearly thickening.
At the current spot rate of around 10.96, ING Think experts maintain a bearish stance, which they describe clearly in the report.
“Norges Bank may leave the door open for further rate hikes, which should make interest rate differentials still attractive for investors betting on a decline in the EUR/NOK rate, even if the ECB also decides to hike.”
According to experts, the rate will fall to 11 NOK within a month, 10.85 NOK in three months and 10.75 NOK over six months.
In a year, according to the report, the rate will fall to 10.70 NOK.
Chart. Euro to Norwegian Krone (EUR/NOK)
Source: Trading Economics
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USD/NOK Rate – The Krone in the Shadow of Commodities and U.S. Hegemony
The USD/NOK rate clearly shows that the Norwegian krone must contend not only with Oslo’s decisions but also with the strength of the USD, which still enjoys its “safe haven” status. Currently the USD/NOK pair requires steel nerves.
If the U.S. Fed shows signs of fatigue in fighting inflation, and Norges Bank keeps pace, we could see a correction in favor of the krone.
It is worth noting that Norway is not just and only a “fuel station of Europe”, as the country increasingly implements AI solutions in the mining and financial sectors.
Thanks to this, Norway gains, especially in terms of long‑term competitiveness, in the eyes of investors and global capital.
The dollar to Norwegian krone rate currently reaches 9.32 NOK.
ING Think’s forecast assumes the rate will reach 9.40 NOK in a month, then fall to 9.27 NOK in three, 9.11 NOK in six and 8.92 NOK in twelve months.
Chart. Dollar to Norwegian Krone (USD/NOK)
Source: Trading Economics
The Norwegian krone to zloty rate reaches 0.38 PLN.
Chart. Norwegian Krone to Zloty (NOK/PLN)
Source: TradingView.
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