Rabobank’s Senior FX Strategist Jane Foley notes that Norges Bank has shifted to a more hawkish stance as Norwegian inflation proves sticky. January and February CPI data surprised on the upside, prompting markets to move from expecting rate cuts to pricing in further tightening. Foley links this repricing partly to energy-related risks, though Norway remains less exposed than many peers.

Sticky CPI drives hawkish expectations

"Following last week’s Norges Bank policy meeting, Governor Wolden Bache stated that “the Committee judges that it will likely be necessary to raise the policy rate at one of the forthcoming monetary policy meetings.”"

"The committee noted that “Inflation has been markedly higher than projected. At the same time, wage growth is projected to be higher this year than projected in December, which will likely restrain disinflation ahead”."

"The release of Norwegian January CPI inflation had wrong footed the market with a stronger than expected print of 3.6% y/y for the headline rate and a 3.4% y/y for the underlying measure."

"At the start of the year, the market had been priced for further rate cuts from the Norges Bank."

"Currently the market is priced for around 39 bps of tightening on a 6-month view."

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