Norwegian Krone: Policy steady as Oil risks dominate – Commerzbank

Commerzbank’s Antje Praefcke notes that Norges Bank kept its policy rate at 4.50% and maintained a ‘high for longer’ stance, leaving the door open to another hike, potentially in December. She argues that incoming data and inflation will guide policy into 2027, but sees Oil and gas price swings, driven by Middle East risks, as the main source of volatility for the Norwegian Krone.

High for longer but data dependent

"Norges Bank left its policy rate unchanged at 4.50% yesterday, as widely expected. Also as expected, it kept the door open for further rate hikes: The Committee’s current assessment of the outlook implies that it will likely be necessary to keep the policy rate elevated for a time. The Committee is prepared to raise the policy rate if warranted by the inflation outlook."

"If necessary, Norges Bank could therefore raise its policy rate again before year-end. All in all, there were no surprises yesterday, which means that the rate decision should be broadly neutral for the NOK."

"This means that Norges Bank is sticking to its “high for longer” stance and, depending on how inflation and growth develop, could well raise its policy rate again, potentially as early as December. Indeed, it explicitly refers to the new forecasts that will be published then: The future path of the policy rate will depend on how the economy evolves. The Committee will have received more information about economic developments ahead of its next monetary policy meeting in December, when new forecasts will also be presented."

"Looking ahead, incoming data will be key to the path of interest rates over the coming months and into 2027, particularly as inflation remains well above Norges Bank’s target - a fact it underlines itself. However, the biggest surprises could come from the conflict in the Middle East. Oil and gas prices remain the main drivers of the NOK, and we are likely to see greater volatility here in the coming weeks than any major surprises from monetary policy."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)