Norwegian Krone Boosted by 'Hawkish' Norge Bank, But Gains Could Prove Fleeting

Above: File image of Ida Wolden Bache. Sourced: Norges Bank.

NOK has rallied following a central bank decision to hold interest rates, but a leading currency analyst warns gains may prove fleeting.

The Norwegian Krone is now the day's top performing major currency after Norges Bank held interest rates and pushed back against expectations that it was prepared to cut rates soon.

The Pound to Krone exchange rate extended its losses to 13.7070 (-0.50%) after Norges Bank maintained its policy rate at 4.50% and said it was prepared to raise interest rates again if warranted by upcoming data outcomes.

"Based on the Committee’s current assessment of the outlook, the policy rate will likely be kept at today’s level for some time ahead," says Governor Ida Wolden Bache.

Track NOK with your own custom rate alerts. Set Up Here

Norges Bank conceded inflation prints have recently undershot its forecasts, but it appears worried that further progress might be slowed owing to stronger-than-expected wage dynamics.

"The tone of the statement was more hawkish than prior," says Charlotte Ong, European FX Strategist at HSBC. "Given that the Norges Bank previously projected rate cuts to begin in September, the new guidance suggests that monetary policy easing may be delayed beyond that."

The pushback in rate cut expectations can support the Krone, particularly against the currencies belonging to central banks more inclined to cut interest rates earlier.

However, Ong says these gains by NOK could prove fleeting. "While the NOK is understandably stronger after the decision, we are doubtful that this will catalyse a turn in the NOK’s fortunes."

She pointes out that going into the meeting, the market was already pricing just a 40% chance of a 25bp cut in September, and so the new guidance has only tweaked that slightly to around a 30% chance.

"For now, the NOK may find some relief but the near-term outlook still appears challenging," says Ong.