Norwegian Krone: Softer inflation trims hike odds – BBH

Brown Brothers Harriman's (BBH) Elias Haddad notes Norwegian Krone (NOK) underperformance after Norway’s mixed August Consumer Price Index (CPI) data reduced the perceived likelihood of a near-term Norges Bank hike, with September odds falling from 65% to 38%. He highlights that inflation remains above the 2% target and still supports one more 25 bps increase to 4.50% by year-end, with Norway’s carry and energy exposure seen as ongoing tailwinds for NOK.

Rate expectations recalibrated for Norway

"NOK is underperforming. Norway’s mixed August CPI offered little support for an imminent hike, pushing September odds down to 38% from 65%. Headline CPI ran hot at 3.3% y/y vs. 3.0% in July, which was above the 3.2% consensus and 3.0% Norges Bank projection."

"Underlying CPI matched consensus at 3.0% y/y vs. 2.7% in July but was cooler than the Norges Bank’s 3.3% projection. Also, the month-on-month decline in underlying CPI was a tick more than anticipated at -0.5% (consensus: -0.4%) vs. +0.8% in July."

"Nonetheless, inflation has been running above the Norges Bank's 2% target for several years now and argues for one more 25bps hike to 4.50% by year-end. Norway’s attractive carry and energy exposure remain key tailwinds for NOK."

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