Norwegian Krone: Policy hold guidance in focus – Nomura

Nomura’s Josie Anderson, George Buckley and Andrzej Szczepaniak expect Norges Bank to keep its policy rate at 4.25% at the August meeting, citing softer underlying inflation and benign domestic data. They see the key issue as future guidance on further hikes this year, with downside CPI-ATE surprises reducing the probability of additional tightening while rate cuts remain off the table.

Norges Bank seen on extended hold

"We expect Norges Bank to leave its policy rate unchanged at 4.25% at its August policy meeting. Underlying inflation unexpectedly slowed in June to 2.7% y-o-y, its first time below 3% since May 2025, and also remained at that rate in today’s data for July (against our and consensus expectations of a slight re-acceleration). This slower rate of inflation is the key reason why we expect Norges Bank to leave its policy rate unchanged despite signalling the possibility of a hike at its last meeting."

"The June minutes said that “some members expressed concern that the stance is not sufficiently restrictive to bring inflation down and argued in favour of raising the policy rate now”, which prompted us to bring forward our expectation of the next rate rise to August from September. However, the soft inflation data since then now suggest an August hike is unlikely."

"A key issue at this week’s meeting will be whether Norges Bank continues to signal that another hike is likely. It will not update its forecasts or policy rate projections in August. However, it may note that the inflation outturns since the June projection have meant the monetary policy outlook has changed, and a rate hike is now less likely than was suggested at the last meeting."

"Overall, we expect Norges Bank to leave its policy rate unchanged at its August meeting, as concerns about sticky inflation have likely eased. In our view, today’s second consecutive downside CPI-ATE inflation surprise has also lowered the probability of a September hike. We therefore think Norges Bank’s guidance could signal a lower likelihood of a second rate hike this year than was suggested in June, but that uncertainty remains very high."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)