The Norwegian Krone (NOK) experienced underperformance following the release of Norway’s August Consumer Price Index (CPI) data, which presented a mixed inflation picture and led to a recalibration of market expectations for a near-term interest rate hike by Norges Bank [1]. According to Brown Brothers Harriman's (BBH) Elias Haddad, the probability of a September rate hike dropped significantly from 65% to 38% after the data release [1].
Headline CPI for August came in at 3.3% year-over-year, up from 3.0% in July, exceeding both the 3.2% market consensus and the Norges Bank’s own projection of 3.0% [1]. Underlying CPI matched consensus at 3.0% year-over-year, compared to 2.7% in July, but was lower than the Norges Bank’s 3.3% projection [1]. On a month-on-month basis, underlying CPI declined by -0.5%, which was slightly more than the anticipated -0.4% and a notable reversal from the +0.8% increase in July [1].
Despite the softer inflation data, BBH notes that inflation has remained above the Norges Bank’s 2% target for several years, which still supports the possibility of one more 25 basis point hike to 4.50% by year-end [1]. Additionally, Norway’s attractive carry and energy exposure are seen as ongoing supportive factors for the NOK [1].
No specific analyst opinions or forward-looking statements beyond BBH’s outlook for a potential year-end hike were mentioned in the article [1].
CONCLUSION
Softer-than-expected inflation data has reduced the likelihood of a near-term Norges Bank rate hike, leading to NOK underperformance. However, persistent inflation above target and Norway’s favorable carry and energy profile may still support a rate increase by year-end.