Norges bank, the lone hawk among the G10
|Summary
- The Norwegian economy showed some resilience towards the end of 2020 and should gather additional momentum as 2021 progresses. Recent data have improved with Norway's January manufacturing PMI staying in expansion territory for the fifth consecutive month, while consumer prices quickened to 2.5% year-over-year.
- The strong inflation print is consistent with recent hawkish commentary from Norges Bank. At its latest monetary policy meeting in January, policymakers opted to hold interest rates steady at current levels. However, the accompanying comments were more hawkish in tone as policymakers were more upbeat on the economic outlook and reiterated they could start raising rates by early next year.
- Given the recent signals from policymakers, in addition to improved data, we now expect two rate hikes from the Norges Bank before the end of 2022. We expect the first policy rate hike to take place in Q1-2022, and the second to occur in Q4-2022.
- Our outlook remains for the Norwegian krone to strengthen over the medium- to longer-term against the euro and greenback. However, given recent developments, the risks around our USD/NOK forecasts are skewed toward faster appreciation than we currently anticipate
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