Norwegian Krone: Rate hike odds slashed after soft inflation – BBH

Brown Brothers Harriman’s Elias Haddad reports that the Norwegian Krone (NOK) is experiencing mixed trading as oil prices rise and the Norwegian Central Bank’s rate expectations decrease. Norway’s underlying inflation (CPI-ATE) remained at 2.7% year-on-year, falling below both the market consensus and the Bank’s forecast. As a result, the probability of a rate hike has decreased significantly, despite Haddad still expecting another increase.

NOK is mixed, with crude oil prices strengthening and offsetting the negative impact from lower Norges Bank rate expectations. In July, Norway's underlying inflation was unchanged at 2.7% y/y, below both the 2.9% consensus and the Norges Bank’s 3.3% projection. While headline CPI was hotter at 3.0% y/y, it remains below the Norges Bank’s 3.1% forecast.

Following the CPI release, markets reduced their expectations of a rate hike for the Bank’s meeting to 6% from 25%. However, it is anticipated that the Norges Bank will maintain its guidance for another hike in the future, as inflation has remained above target for several years.