BNY’s Bob Savage argues that the central bank of Norway, Norges Bank’s bias to tighten, driven by domestic and energy-related strength, is largely priced and may not extend Norwegian Krone (NOK) gains. By contrast, soft Swedish inflation and weak growth expectations mean the the central bank of Sweden, Riksbank is unlikely to hike this year. He expects NOK–SEK divergence to become more visible as markets reassess year-end rate expectations.

Norges hawkish, Riksbank likely on hold

"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."

"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."

"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."

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