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Executive Summary:
- Accelerating core inflation should tilt decision to ‘double’ hike of 50bps
- Fresh path projections should see possibility of key rate above 4.00% next year
- Weak NOK, higher foreign rates, tight jobs market argue for faster policy tightening
Full preview including summary of sell-side views here:
The Norges Bank's model-based policy approach and sensitivity to the weaker local currency should tilt the Bank to conducting a 'double' hike of 50bps this week. Core inflation is re-accelerating, wage settlements remain elevated and a tight labour market suggests continued pressures ahead. Lastly, the resilient housing market justifies a faster pace of tightening in Norway.
Most of these factors would justify a 25bps step for June, however the May CPI-ATE release will have changed the thinking of the board, and should result in sharply higher near-term inflation and rate path projections, as well as a lower assumption for the I-44 NOK exchange rate.
Both markets and analysts are split ahead of this week’s decision, with a significant minority looking for a larger 50bps move, while the slim majority look for the bank to keep pace with a 25bps rate rise. NOK FRAs see partial probability of a larger move, with 30-35bps priced for this week.Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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