According to Erik Johannes Bruce, analyst at Nordea Markets, the weak NOK argues for Norges Bank to signal a rate hike in September despite increased international uncertainty.
Key Quotes
“Norges Bank’s in-between meeting in August will be more interesting than usual. We will not receive any new rate path and a change in interest rates is out of the question. However, we will receive a statement where the Executive Board will present new information since the last meeting in June and give their assessment, which could have a strong market impact.”
“Given the drop in actual and expected rates abroad, the market has nearly lost all faith that Norges Banks will hike further.”
“Given Norges Bank’s normal reaction function it is hard not to conclude that the weaker NOK more than counteracts downside news and increased international uncertainty. We therefore believe Norges Bank still wants to send a message that rates will increase further. We also think Norges Bank will indicate that a hike in September is the most likely outcome, and the bank has some choices in how to communicate this.”
“We favor a clear signal of a rate hike in September. The market is currently pricing in only 5-10 bp higher rates over the next two meetings. We do believe Norges Bank still sees good arguments for higher rates and has no wish to lower current expectations in the market and weaken NOK further. To avoid this, we think it is necessary for Norges Bank to clearly tell the market that it still sees a September hike as most likely outcome.”
Share
