Norges Bank is the sole hawk in town – Danske Bank

Danske Bank's analysts note that the Central Bank of Norway (Norges Bank) remains the sole G10 central bank hiking policy rates after it increased policy rates by 25bp at the June meeting.

• “More importantly the central bank maintained its clear tightening bias by signalling roughly two hikes over the coming year with the next one due already in September. This leaves Norges Bank as the sole G10 central bank hiking rates. So far, the relative rates’ impact on the NOK has been muted but we expect this to change as the carry in the NOK catches up alternatives in AUD, NZD and CAD.
• The important Regional Network Survey indicated growth in coming quarters of around 0.8% q/q, which is above trend potential and suggests that domestic wage pressures will continue to rise. This, in turn, has implications for inflation, as it means there now is less room for higher imported inflation – and hence a weaker NOK – if Norges Bank is to fulfil its 2% inflation target.
• The NOK has suffered from foreign selling amid the escalating US/China trade war, lower oil prices and falling global inflation expectations. The decoupling from relative rates has been very pronounced over the past year and while a slowing China and the existence of more attractive commodity carry alternatives can partly explain NOK weakness, we still think the fundamental NOK backdrop is key to remember. As long as the global economy does not fall into a recession, global petroleum industries do not collapse and Norwegian competitiveness does not erode, the NOK would have to strengthen for Norges Bank to fulfil its inflation target.”