Commerzbank’s Antje Praefcke expects Norges Bank to keep rates at 4.0% but maintain a distinctly hawkish tone compared with the Riksbank. With Norwegian inflation above target, the bank projects one or two hikes by year-end and may act in June if Iran-related risks persist. This backdrop favours a gradual EUR/NOK decline and a sustained NOK/SEK break above parity.

Hawkish hold underpins Norwegian Krone outlook

"Much like the Riksbank, it will likely sit on the sidelines in May and keep the policy rate at 4%, but it will sound significantly more hawkish than its Nordic counterpart. After all, inflation rates in Norway - at 3.6% (headline rate) and 3.0% (core rate) - are well above the inflation target. This is why it reversed course in March and now expects the policy rate to rise once or twice by the end of the year."

"Nevertheless, I think it will still be too early for an interest rate move tomorrow. Norges Bank will certainly want to wait a little longer to see how the Iran conflict unfolds before taking concrete action. It has already signaled its willingness to raise rates and will continue to underscore this tomorrow. In June, however, based on the new monetary policy report with possible new forecasts, it may raise the policy rate if it becomes truly necessary, should the war in the Middle East drag on and increase the risks to inflation and inflation expectations."

"Tomorrow's interest rate meeting itself is likely to be relatively neutral for the NOK, unless Norges Bank surprises with a hike at this point in time. As an energy exporter, Norway is in a better position in the current crisis than the euro area or Sweden. Therefore, EUR/NOK is likely to continue trending slowly lower, and NOK/SEK is likely to break through parity on a sustainable basis."

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