As expected, Norges Bank raised the policy rate by 25 basis points to 4%. Antje Praefcke, FX Analyst at Commerzbank, expects the Norwegian Krone (NOK) to appreciate in the coming months.
Norges Bank delivered what it could at this moment in time: a 25 bps rate hike to 4% as well as signalling that it will hike the key rate again in September if everything develops as currently projected; while also signalling that the key rate might have to be higher if the Krone was going to weaken and with inflation pressure remaining in place.
If future data turns out as it expects, Norges Bank will hike rates again in September and then probably leave everything on hold. The market is not yet entirely convinced that there will be another rate step in September, but if over the coming weeks, the data is in line with what Norges Bank expected in June the market is likely to increasingly take Norges Bank’s view – which will support NOK. If it surprises on the upside, this increases the likelihood of Norges Bank hiking rates even further than the currently projected terminal rate of 4.25%, which in turn would fuel the NOK.
I remain comfortable with the projection of moderate Krone appreciation over the coming months.
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