In Norway, inflation has been consistently high compared to other countries, especially the core rate. However, there has been a significant progress in the disinflation process over the summer, with seasonally adjusted data in recent months aligning with the inflation target. Despite this positive trend, Norges Bank has been cautious about rate cuts. Their current interest rate path from September does not signal a possible rate cut until March 2025. But according to Commerzbank’s FX Analyst Antje Praefcke, the recent positive inflation trend may prompt Norges Bank to act sooner than expected.
Praefcke believes that it is unlikely for Norges Bank to lower rates at the moment, especially with October’s inflation data yet to be released. However, he speculates that Norges Bank may hint at a potential rate cut in the near future. He suggests that the bank could potentially lower rates in December based on new forecasts in the Monetary Policy Report, or in January following the release of October and November inflation data.
The weakness of the Norwegian Krone (NOK) can be attributed to the uncertain geopolitical situation and the weak oil price. While it showed some gains against the euro recently, it primarily resulted from the weakness of the euro itself. It is uncertain whether the NOK will benefit from any potential rate cuts by Norges Bank, as the real interest rate would need to significantly improve compared to other currency areas. It is expected that the NOK will continue to face challenges in the near future.
As Norges Bank considers a potential rate cut in the coming months, the focus is likely to be on the January meeting. With the release of inflation data for October and November in December, Norges Bank could adjust its interest rate path accordingly. This adjustment would prepare the market for a potential interest rate turnaround in January. The decision will be influenced by the inflation data and economic forecasts available at that time.
The NOK’s performance will depend on various factors, including the geopolitical landscape and oil prices. While it may have gained slightly against the euro in recent days, it is still facing challenges. For the NOK to strengthen, it would need to see improvements in the real interest rate compared to other currencies. The NOK’s future performance will be closely tied to the decisions and actions taken by Norges Bank in the coming months.
Overall, the inflation situation in Norway has shown positive developments in recent months, prompting speculation about potential rate cuts by Norges Bank. The decision on rate cuts will be influenced by inflation data, economic forecasts, and the overall global economic landscape. The NOK’s performance will be closely monitored in response to Norges Bank’s decisions, and it may face challenges in the short term due to geopolitical uncertainties and weak oil prices.
