Rentepause kan svekke kronen

Norges Bank may keep interest rates unchanged this Thursday, or potentially raise them to 4.5%, according to reports. Handelsbanken believes that an unchanged rate would result in a larger impact on the krone compared to a rate hike. The bank's analysts predict the krone would likely only modestly strengthen. Any move other than a hike is expected to be received "cautiously and discreetly," with terms like "hawkish" and "dove" describing the differing stances of central banks and market participants.

The hope is that both Norges Bank and other central banks worldwide will raise rates to counter high inflation, driven by soaring energy prices due to the Middle East conflict. The US and eurozone have already raised rates this autumn, with more expected throughout 2023 and 2024. Currently, the market prices in more than a 60% chance of a rate hike from Norges Bank.

However, the timing remains uncertain, with some speculating it may come before Christmas and further increases early next year. The fear is that if Norges Bank delays the hike and the inflation outlook worsens, it could lead to a loss of confidence in the central bank's ability to manage inflation, potentially causing market concerns.

This is one reason why strategists like Nils Kristian Knudsen and Dane Cekov from SB1 Markets believe Norges Bank should hike rates now. The spread between interest rates of different countries can influence currency exchange rates. Higher interest rates or expectations of future rate hikes can make a country's currency more attractive to investors, increasing demand and strengthening the currency.

However, Cekov believes the krone's strength isn't primarily due to higher rates in Norway. If that were the case, we would have seen a weaker krone rather than a stronger one. Instead, he attributes the krone's rise to favorable rate differentials and expectations between the US, Europe, and Norway, compared to recent rate hikes in those regions.

Energy prices, particularly oil, have played a significant role in the krone's strength, according to Cekov. The Norwegian krone has moved closely in line with oil and gas prices, which have risen recently. The krone has strengthened against the euro and the dollar over the past few months, peaking around 10.8 kroner per euro and 9.49 kroner per dollar.

The Norwegian krone has been relatively strong compared to Norges Bank's previous forecasts in June. The exchange rate for the krone against the euro of around 10.8 and the dollar at around 9.49 is noteworthy.