Norwegian Krone: Norges Bank softens hawkish stance – TD Securities

TD Securities’ Norges Bank analysis notes the policy rate was left unchanged at 4.25% in August, with a less hawkish tone than in June. Softer underlying Consumer Price Index (CPI) at 2.7% y/y reduced the need for further tightening, shifting guidance from a hike being "likely" to one that "may" be needed. TD removes its September hike call, expecting the rate to stay at 4.25%, while keeping an oil-driven hike scenario as an optional, non-base case.

Rate on hold with higher hike bar

"Norges Bank left the policy rate unchanged at 4.25% in August but delivered a noticeably less hawkish message than in June."

"Softer-than-expected inflation over the summer, with underlying CPI slowing to 2.7% y/y, has reduced the need for further tightening, prompting the Committee to downgrade its guidance from a hike "likely" being required to one that "may" still be needed."

"Policymakers remain unwilling to declare victory over inflation and continue to stress that policy must stay restrictive, but the burden of proof for another hike is now higher than it was in June."

"As a result, we are removing our forecast for an additional hike in September and now expect the policy rate to remain at the current restrictive 4.25% level for longer."

"Should the Middle East deal continue to be elusive and oil shift higher into the autumn months, the optionality for an additional hike may be back on the table, but is no longer our base case."