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Strategists at Handelsbanken expect the Norges Bank to stay on hold until the end of 2022 as it will take time for the economy to return to its pre-crisis level. Regarding the EUR/NOK pair, the bank has lifted its year-end forecast to 11.00 from 10.50.

Key quotes

“We expect Mainland GDP to contract by 3.5 percent this year, before rebounding by 3.6 percent in 2021 and 2 percent in 2022. By the end of our forecast period, activity will be down by about 2 percent relative to the pre-crisis trend. Also, note in this regard that the reported investment plans for the Continental Shelf imply that real petroleum investments will decline quite substantially during the forecast period, despite temporary tax relief. Lower demand from the oil sector will continue to hamper the full recovery of the economy.”

“We now believe Norges Bank will move faster than its peers to raise its policy rate by 25bp to 0.25 percent in Q4 2022 (vs. previously no change).”

“At present, the currency market is dominated by increased near-term uncertainties. We now see the EUR/NOK at around 11.00 by the end of this year, vs. previously expected 10.50.”