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According to analysts at ING, the Norwegian central bank has embarked on a tightening cycle and the big question ahead of the today’s announcement is whether it hints more strongly at a June rate hike.

Key Quotes

“The case for further tightening certainly looks fairly solid. The domestic economy is in good shape, helped along by the recovery in energy prices over the past couple of years. The central bank estimates that the break-even cost for new Norwegian projects lies between $10-35 per barrel, well below current market pricing, and this is helping to incentivise energy-related investment. This stronger oil/gas backdrop, combined with general tightness in the jobs market, also means that wage growth looks set to increase further.”

“With this in mind, the Norges Bank’s March policy rate forecast pointed to further tightening over the next few years. These projections implied that the odds of a June rate hike sit at roughly 50:50 – and that’s more or less the view taken by markets, too.”

“We have been forecasting a rate hike in September, followed by another in March 2020. However it is increasingly possible that this happens in June and December, and we’ll be watching closely to see if policymakers drop some additional hawkish hints at this week’s meeting.”

“Should the Norges Bank conclude that the outlook and the balance of risks have not changed substantially since the 21 March report and repeat its view that the policy rate will “most likely be increased further in the course of the next half-year”, we would expect NOK interest rates and the currency to get a small lift.”