Norwegian Krone: Softer Norges Bank stance weighs – BBH

Brown Brothers Harriman’s Elias Haddad reports Norwegian Krone weakness after Norges Bank maintained rates at 4.25% but softened its hawkish stance. Forward guidance shifted from a likely rate hike to a more conditional position, dropping an explicit call for tighter policy. Haddad notes that additional inflation surprises would further reduce hike odds, though Norway’s carry still supports the NOK.

The NOK weakened after Norges Bank delivered a less hawkish hold. As expected, the Norges Bank left the policy rate unchanged at 4.25% for a second consecutive meeting. Norges Bank softened its hawkish bias, shifting from suggesting another rate increase at "one of the forthcoming monetary policy meetings" to simply noting "It may still become necessary to raise the policy rate."

The bank also dropped its explicit call for a tighter stance, reiterating only that "a restrictive monetary policy stance is still needed." Further downside surprises in Norway’s inflation outlook relative to the Bank’s projection would weaken the case for an additional rate hike. However, Norway’s attractive carry remains supportive of the NOK.