In Norway, Norges Bank will announce monetary policy today. The Bank has a reputation for being rather predictable in policy decisions, and we had estimated a 25bp rate hike in our latest Norway update, accompanied by a pledge to push rates closer to 4.0% to support the krone.
The recent inflation surprise in Norway and the krone’s still weak position (especially against the euro) have led many analysts to call for a 50bp hike today.
As FX strategists, we agree that delivering a larger hike at a time when EUR/NOK is off the recent highs would make sense as it can trigger a more sustainable positive impact on NOK compared to an “emergency” hawkish surprise delivered during a NOK sell-off. However, and despite admitting it’s a close call, the historically mechanical and model-based rate-setting approach by Norges Bank makes us lean in favour of a hawkish 25bp hike today, rather than a 50bp move. NOK can still trade higher in our baseline scenario, although investors may soon be expecting further trims to FX purchases (announced next week) to keep NOK supported.
