Norwegian Krone: Watching Norges Bank and energy prices – Commerzbank

Commerzbank’s Antje Praefcke highlights that Norges Bank, having front‑loaded a hike in September due to persistent inflation, is expected to keep rates unchanged today while maintaining a "high for longer" stance. Markets are unsure about a December move; any stronger tightening signal could lift the Krone, though Oil and gas prices remain its primary drivers.

High for longer with December risk

"Norges Bank decided at the end of September to bring forward its policy rate hike rather than wait until December. The rationale centred on persistently high inflation, as all the other factors, including the strong krone, which has a dampening effect on inflation, and companies’ expectations for economic activity over the next six months, would have allowed Norges Bank to wait until the end of the year."

"In fact, headline inflation stands at 3.4% and core inflation at 3.0% year-on-year (September), compared with an inflation target of 2%, which Norges Bank has failed to meet since the pandemic. Against this backdrop, Norges Bank’s decision to bring forward the rate hike and signal that the policy rate will now remain elevated for longer than previously expected is quite understandable. Norges Bank is therefore sticking to a “high for longer” stance and is not ruling out further rate increases."

"Today, however, Norges Bank is likely to stand pat. Following the September hike, it can afford to wait for further data before taking action again, potentially raising rates once more in December on the basis of updated forecasts in its new Monetary Policy Report. Norges Bank is nevertheless likely to keep the door wide open for further rate hikes, including as early as December."

"The market expects Norges Bank to remain on hold today, but is far from convinced that it will raise rates in December. If Norges Bank signals today that it has become more inclined to raise rates before the end of the year, the NOK should therefore benefit. More broadly, however, the krone remains primarily driven by oil and gas prices."

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