Key Moments
- ING expects Norges Bank to hold its policy rate at 4.25% while still projecting another increase later in the year.
- Recent 2.7% CPI-ATE readings in June and July have introduced downside risks to the hawkish tone and limited room for further front-end NOK rate upside.
- ING maintains a positive stance on the krone, targeting EUR/NOK at 10.75 by year-end despite reduced conviction about multiple additional hikes.
Policy Meeting Seen as Risk Event for NOK
Francesco Pesole at ING highlights that the latest Norges Bank policy announcement presents potential downside risks for the Norwegian krone, as communication could shift in a less hawkish direction.
He notes that policymakers are anticipated to keep the key rate at 4.25%, matching market expectations, while still signaling another rate increase later in the year. At the same time, confidence in the likelihood of more than one additional hike has diminished.
Impact of Inflation Data on Rate Expectations
Pesole points to recent inflation developments as a key factor shaping the central bank’s tone toward policy tightening. He underscores that:
“However, we cannot ignore the two benign 2.7% CPI-ATE prints in June and July and how they might tilt the balance to a slightly less hawkish tone. We see little upside room for front-end NOK rates anyway at this stage.”
According to the analysis, market pricing is broadly aligned with ING’s base case for policy tightening by year-end.
| Indicator / View | Detail |
|---|---|
| Current policy rate expectation | Hold at 4.25% |
| Additional tightening priced by markets | 27bp by year-end |
| ING stance on further hikes | Expects another hike, but less convinced about more than one move |
| Year-end EUR/NOK target | 10.75 |
Market Pricing and ING’s Assessment
Commenting on market-implied policy expectations, Pesole states:
“Markets are pricing in 27bp of tightening by year-end, broadly in line with our base case, but we have become less convinced about another hike and even less convinced about the prospect of more than one.”
This view reflects a more cautious stance on the scale of additional tightening, even as the base case still anticipates a further increase in rates.
Krone Fundamentals and EUR/NOK Outlook
Despite the perceived downside risk from a potentially softer policy tone and limited scope for higher front-end NOK yields, ING continues to hold a constructive view on the Norwegian currency.
As Pesole explains:
“That is not a major concern for our bullish NOK views, however. Fundamentals and an attractive carry regardless of another hike, and we remain bullish on the krone with a 10.75 target versus EUR at the end of December.”
In summary, while the immediate policy communication could weigh on NOK, ING continues to see supportive underlying fundamentals and carry dynamics, retaining a bullish year-end EUR/NOK target of 10.75.
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