Key Moments
- BNY’s Bob Savage notes that Norges Bank’s tightening bias, supported by domestic and energy strength, is seen as largely reflected in current NOK pricing.
- Soft Swedish inflation data and subdued growth expectations are viewed as reducing the likelihood of any Riksbank rate hikes this year.
- Savage expects the NOK-SEK divergence to become more pronounced as markets revise their expectations for year-end policy paths.
Differing Nordic Monetary Policy Trajectories
BNY’s Bob Savage highlights a growing contrast between Norway and Sweden’s monetary policy outlooks, centered on how markets are treating energy dynamics and domestic conditions in each economy.
He argues that Norges Bank’s inclination to tighten policy, underpinned by resilient domestic activity and energy-related strength, has been substantially incorporated into the value of the Norwegian Krone (NOK). As a result, he suggests that this may limit further NOK appreciation purely on the basis of additional hawkish signals.
In contrast, he points to Sweden’s softer inflation profile and modest growth prospects as key reasons why the Riksbank is seen as unlikely to raise interest rates this year, reinforcing a diverging outlook between NOK and SEK.
Central Bank Decisions in Focus
“Transposing such views onto Norges Bank and the Riksbank, which decide in the coming days, we believe a similar approach is needed as markets continue to expect multiple hikes toward year end at both. As we have stressed, domestic conditions already justified aggressive moves from Norges.”
Savage underscores that both central banks are approaching important policy meetings with markets still pricing in several rate increases into year-end. However, he emphasizes that much of the justification for Norges Bank’s past hawkish steps has already been realized via domestic fundamentals.
Norges Bank: Hawkish Tilt Already in the Price
“With energy-related output adding upside risk to the labor market, a more assertive stance is perhaps warranted – though much of this is already in the price. Norges will continue to sell FX to purchase NOK for May, but at NOK 100mn a day, the pace sits toward the lower end of historical transaction records.”
“We expect a move to neutral soon.”
Savage notes that energy-linked production is providing additional support to Norway’s labor market, which could justify a firmer policy tone. Nonetheless, he stresses that financial markets have already captured much of this story. He also points out that Norges Bank is set to keep selling foreign exchange to buy NOK during May at a pace of NOK 100mn per day, which he characterizes as relatively low compared with past transaction levels.
| Central Bank | Policy Bias | Key Drivers | Market Pricing Implication |
|---|---|---|---|
| Norges Bank | Bias to tighten, expected to move toward neutral | Domestic strength; energy-related output supporting labor market | Hawkish stance seen as largely priced into NOK |
| Riksbank | Likely on hold | Soft inflation prints; weak growth expectations | Reduced expectations for additional tightening this year |
Riksbank: Soft Inflation Limits Scope to Hike
“For the Riksbank, considering their low policy starting point, matching the ECB would have been understandable, but the surprisingly soft inflation prints for March (sequential decline in both CPI and CPI-F) and lackluster growth expectations forced out almost 50bp in tightening through mid-April, though expectations are ticking up again due to ceasefire uncertainty.”
“We don’t see the Riksbank moving this year either, and NOK–SEK divergence will likely become more apparent in the coming cycles.”
Savage explains that, given the Riksbank’s relatively low initial policy rate, aligning with the ECB’s stance might have been a plausible strategy. However, the weaker-than-expected March inflation readings – covering both CPI and CPI-F, which fell sequentially – combined with subdued growth expectations led markets to scale back nearly 50bp of anticipated tightening through mid-April. He notes that some of those expectations are now drifting higher again, influenced by ceasefire-related uncertainty, but he still does not anticipate Riksbank hikes this year.
Outlook for NOK-SEK Divergence
Against this backdrop, Savage foresees a widening policy and performance gap between NOK and SEK. With Norges Bank’s hawkish narrative already largely embedded in NOK and the Riksbank likely remaining on hold, he expects the divergence between the two currencies to become more evident as investors revisit their year-end rate projections in the coming policy cycles.
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