BNY’s Bob Savage highlights diverging monetary policy paths between Norway and Sweden, with the Norwegian central bank (Norges Bank) maintaining a tightening bias due to domestic and energy-related economic strength, while the Swedish central bank (Riksbank) is expected to remain on hold amid soft inflation and weak growth expectations [1]. Savage notes that much of the potential for further Norwegian Krone (NOK) gains is already priced in, as Norges Bank’s assertive stance has been justified by domestic conditions and energy output, which add upside risk to the labor market [1].
Norges Bank is set to continue selling foreign exchange to purchase NOK in May, but at a pace of NOK 100 million per day, which is at the lower end of historical transaction records [1]. Savage anticipates that Norges Bank will soon shift to a neutral policy stance [1]. In contrast, the Riksbank’s low policy starting point and recent soft inflation data, including sequential declines in both CPI and CPI-F for March, along with lackluster growth expectations, have led markets to remove almost 50 basis points of expected tightening through mid-April [1]. However, expectations for tightening are ticking up again due to ceasefire uncertainty [1].
Despite these shifting expectations, Savage does not foresee the Riksbank raising rates this year, and expects the divergence between NOK and SEK to become more pronounced as markets reassess year-end rate expectations [1].
CONCLUSION
The market is likely to see increased divergence between the Norwegian Krone and Swedish Krona, with Norges Bank’s hawkish stance largely priced in and the Riksbank expected to remain on hold. Investors should monitor upcoming central bank decisions and evolving rate expectations for further market direction.