Antje Praefcke at Commerzbank explains that Norges Bank’s September decision to bring forward a rate hike was driven by persistent inflation above its 2% target. With headline inflation at 3.4% and core at 3.0%, the bank now signals policy will stay elevated for longer and another hike cannot be ruled out, a stance she sees as subtly positive for the Norwegian Krone.

Persistent inflation keeps rates elevated

“It was not a close call for Norges Bank at the end of September to bring forward the policy rate hike rather than wait until December. The reasoning focused on persistently high inflation, since all other factors – including the strong krone, which has a dampening effect on inflation, and businesses’ expectations for economic activity over the next six months – would have made it possible to wait until the end of the year.”

“In fact, inflation stands at 3.4% and core inflation at 3.0% compared to the previous year (September) – with an inflation target of 2% that Norges Bank has failed to meet since the pandemic.”

“In this regard, Norges Bank’s decision to bring forward the rate hike and to signal that the policy rate will now remain elevated for longer than previously anticipated is entirely understandable. Depending on the data in the coming weeks and months, another rate hike cannot be ruled out, though it is not Norges Bank’s main scenario.”

“The “high for longer” stance, along with the signal that rates could be raised again if necessary, is subtly positive for the NOK. In general, however, the currency remains primarily driven by oil and gas prices.”