Norway's Shift: Anticipating a 25bp Rate Hike Amidst Krone Stabilisation

Norway to pivot back to 25bp rate hike following krone stabilisation

After the krone continued to weaken throughout the second quarter, Norges Bank hiked rates by half a percentage point in June and substantially increased its interest rate projection. Back then it saw rates peaking at 4.25% (from 3.75%) now, and there’s little reason to believe that thinking has changed much since.

Inflation has come in largely as expected, while the krone has strengthened and Norges Bank’s I44 trade-weighted index is on-track to undershoot (i.e a bigger appreciation) than had been forecast in June. That suggests we will get a 25bp rate hike next week, and assuming other central banks are very close to finishing their own tightening cycles, we suspect another 25bp hike in September will mark the peak for policy rates in Norway.

 

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