Norway's crown, the rate cut spoiler
Aug 7 (Reuters) -Norwegian inflation has been falling since May 2023 but the Norges Bank has maintained a hawkish policy bias and there is a possibility that interest rates may be raised one last time because of weakness in the crown.
Versus the EUR, the NOK is trading above its 2024 low point, 12.1320, and strongly above the May 2023 12.3020 low, a stand-out level since the COVID 13.2065 EUR/NOK peak. However, EUR/NOK has gained 60% in the last 12 years and the cross has appreciated around 28% since basing at 9.4355 in April 2022.
These numbers don't sit well with the Norges Bank and while currency weakness has the propensity to underpin domestic inflation, Norwegian rate cuts will not be on the central bank's radar.
Analysts expect the weak crown trend to push inflation higher over the next six to nine months. A resumption of the EUR/NOK bull run could force the Norges Bank to raise its rate path and a rate hike shouldn't be ruled out.
Norwegian inflation data for July is due for release on Aug. 9 and is expected to show core CPI at 3.3% year-on-year from 3.4% in June. Despite the drop from June's number, expectations are for prices to pick up again in August.
For more click on FXBUZ
EUR/NOK monthly candle chart: https://tmsnrt.rs/3WEmj0q
Norway monthly core CPI chart: https://tmsnrt.rs/3yG53jo
(Peter Stoneham is a Reuters market analyst. The views expressed are his own)
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