According to the Danske Research Team, Norwegian core inflation rose to 3.0% year-on-year in August, which is below Norges Bank’s June Monetary Policy Report projection of 3.3% [1]. This lower-than-expected inflation print suggests a reduced rate path, shifting market expectations from approximately 1.5 further hikes to just 0.5 hike implied [1]. The report notes that while growth in Norway is weaker and the Norwegian Krone (NOK) is stronger, global rate expectations have increased, creating a mixed backdrop for monetary policy decisions [1].
Danske Bank now views the September rate decision as a close call, with the probability of a hike falling after the latest inflation data [1]. The bank expects Norges Bank to remain on hold in September unless the regional survey on 17 September delivers an upside surprise [1]. Market pricing ahead of the meeting is seen as potentially decisive for the outcome [1].
Despite a sharply higher oil price, the EUR/NOK exchange rate climbed towards 10.80, and the recent rally in the Norwegian Krone appears to be losing momentum [1].
CONCLUSION
Softer-than-expected Norwegian core inflation has reduced the likelihood of a September rate hike by Norges Bank, with Danske Bank now expecting the central bank to stay on hold. Market attention will focus on upcoming data and pricing, as the decision remains finely balanced.