Norges Bank to raise its policy rate forecasts again - TDS

Analysts at TDS are looking for the Norges Bank to raise its policy rate forecasts again in this week’s MPR, despite the continued downside surprise in the inflation data.

“The Norges Bank will have to tread carefully, since if it pulls forward its first rate hike to the beginning of 2019, as expected, then markets may focus more on the policy differential with the ECB and the fact that the Norges Bank could now be the first one to raise rates. This is a fairly substantial change from 6 months ago, when the Norges Bank wasn’t looking to start raising rates until 2020.”

“FX Strategy: While the Norges Bank may pull its rate hike forecast forward, we do not think this may be enough to support the NOK as liquidity deteriorates into year-end. While we think the NOK is attractive from a longer-term perspective, momentum in EURNOK remains to the upside and seasonal risks loom large.”

“Rates Strategy: We maintain a bias for wider 2y1y NOK vs EUR OIS spread which currently trades at133bps.”