Commerzbank’s Antje Praefcke highlights recent confusion in Norway after delayed core inflation data and an unexpected slowdown in both headline and core rates. Despite Norges Bank’s earlier hawkish tilt and a policy rate forecast just over 4.5% by year-end, the softer June figures reduce the likelihood of an August hike. Norwegian Krone (NOK) remains broadly calm, supported by higher Oil prices.

Norges Bank waits for clarity

"Despite leaving the policy rate unchanged at 4.25%, the bank signaled a slightly higher probability of another rate hike at one of its meetings later this year. This is because inflation remains too high and, without a rate hike, could become more persistent and harder to bring down."

"Accordingly, Norges Bank set its forecast for the policy rate slightly higher than in March. It stands at just over 4.5% by year-end (previously “between 4.25% and 4.50%”). This means that in June, Norges Bank was more certain than before that another rate hike would come later this year."

"Norges Bank will certainly not want to surprise the market with a dovish shift at the August meeting. In addition, there were technical issues with the compilation of the data this time."

"An interest rate hike as early as August has become slightly less likely given the surprisingly low June data, but it’s not off the table. Furthermore, Norges Bank could also wait for additional data and then raise the policy rate in September based on the new forecasts in the upcoming Monetary Policy Report."

"In short: Despite the confusion, it’s important to keep a cool head and wait to see how things develop. The NOK is calm anyway and, apart from a brief reaction to the data, remained unimpressed. For now, the higher oil price is once again the key - positive - driver for the currency."

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