Erik Johannes Bruce, analyst at Nordea Markets, suggests that Norges Bank will increase the key rate on Thursday and signal a small probability for another hike later in the forecast period, which is hawkish compared to what the market currently expects.

Key Quotes

“Norges Bank will announce its interest rate decision and publish a new rate path on Thursday, 19th September at 10AM. On the contrary to many previous rate meetings, there is high uncertainty this time about the rate decision. Analysts disagree, while the market is currently pricing about 50% probability for a rate hike.”

“Our view – that Norges Bank will hike – is partly based on the signals Norges Bank sent at the in-between meeting in August, where the Bank said that it in the short-term would stick to the latest rate path from June. The June-path gave an 80% probability for a rate hike in September. New information since the meeting in August should not have changed Norges Bank’s view. The domestic picture has not changed much since the August meeting and NOK remains weak. Furthermore, the uncertainty connected to international developments – Brexit and the trade war – has if anything somewhat softened. Hence, Norges Bank will increase its key rate from 1,25% to 1,50% at the meeting on Thursday.”

“Concerning the rate path, our view is based on new information since June and Norges Bank’s reaction function as described in the Monetary Policy Reports. Developments in the domestic real-economy have been very much in line with Norges Bank`s expectations.”

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