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The Bank of Norway, the most hawkish bank in the near future?

The Bank of Norway, the most hawkish bank in the near future?

created Daniel KosteckiJanuary 28 2019

The Bank of Norway may be the only central bank in the developed countries group that will decide to raise interest rates in the first quarter of this year or even in the first half of the year. After today's decision on interest rates, little was expected, namely that Norges Bank will keep the main interest rate at 0,75 percent. It is worth recalling that the NB has been lowering the level of rates in the last cycle systematically since May 2011 year from the level 2,25 percent. to 0,5 percent in March XUMUM year. Only in September 2016 the central bank raised the interest rate to the current 2018 percentage.

norway interest rates

After the last decision, the central bank decided that inflation is slightly higher than the original level, repeating forecasts of gradual interest rate increases. 

norway inflation

Inflation in Norway with a forecast. Source: Trading Economics

The Norwegian bank thus confirmed that the next raise should take place in March. The head of NB Oystein Olsen said at a press conference that overall, new information indicates that the forecasts for future monetary policy have not changed much since the December meeting.

norway interest rates

Forecast for interest rates in Norway. Source: Trading Economics

Therefore, the gradual tightening of monetary policy by the Bank of Norway may be sufficient to allow the Norwegian krone  strengthened in relation to other major currencies in the coming quarters, especially if NB is the only hawk.


USDNOK pair chart, weekly interval. Source: Conotoxia platform

From the point of view of analyzing the pair of USDNOK, the mid-term exchange rate stays in the growth channel, which upper limit is a quite significant barrier to supply. It affects the market along with the last local vertices. Nevertheless, in order for the NOK to strengthen here, it would first have to overcome the line taken after the last holes.

To complement the subject of monetary policy and the USDNOK pair below, also market expectations regarding further FED policy based on Federal Fund interest rate forward contracts.

Norway interest rate

The above chart shows that the interest rate market is considering further interest rate hike by the Fed this year, and then pricing the chances of cuts already in the 2020 year.

Daniel Kostecki
Chief Analyst Conotoxia Ltd.

The above commentary is not a recommendation within the meaning of the Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes and should not constitute a basis for making investment decisions. Neither the author of the study nor Conotoxia Ltd. are responsible for investment decisions taken on the basis of the information contained in this comment. Copying or reproduction of this document without the written consent of Conotoxia Ltd. is prohibited.

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About the Author
Daniel Kostecki
Chief Analyst of CMC Markets Polska. Privately on the capital market since 2007, and on the Forex market since 2010.

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