Norges Bank Expected to Hike Rates to 4.50% Thursday
ING Think forecasts a final 25bp rate hike to 4.50% despite mixed inflation data.
Key points
- ING Think expects Norges Bank to hike rates by 25bp to 4.50% on Thursday.
- Headline inflation stands at 3.3%, exceeding central bank projections by 0.3 percentage points.
- The EUR/NOK exchange rate may face pressure if oil prices fall sharply in Q4.
Norges Bank is set to raise interest rates by 25 basis points to 4.50% on Thursday. ING Think projects this move as the final hike in the current tightening cycle.
The decision is closely contested as core inflation has fallen below central bank projections. However, headline inflation remains 0.3 percentage points above expectations at 3.3%.
Inflation data presents conflicting signals
Underlying CPI eased to 2.7% in June and July before rising to 3.0% in August. This trajectory stayed below the central bank's consistent 3.3% forecast for those months.
Headline inflation currently sits at 3.3%, exceeding projections by 0.3 percentage points. Higher energy prices continue to support overall price levels despite softer core trends.
Economic conditions favor insurance tightening
Wage growth is expected to remain elevated at 4.0% in 2027 according to regional surveys. Solid domestic economic conditions reduce the risk associated with further monetary tightening.
Market participants have already priced in 16 basis points of tightening for this meeting. The cost of disappointing expectations may outweigh the risk of acting early.
Currency outlook hinges on oil prices
A rate hike should support the Norwegian krone against the euro. ING maintains a near-term EUR/NOK target of 10.70 with potential to reach 10.60.
A sharp decline in oil prices from the fourth quarter is the baseline scenario. This development could push the exchange rate back toward 11.00 levels.
