Norway’s Norges Bank set to turn ‘cautiously hawkish’

Midsummer in Scandinavia is famed for long, unbroken daylight and a sense of revelry.

The full extent of the festive mood is not expected to reach Thursday’s meeting of the Norway’s central bank, which is set to turn only “cautiously hawkish”, according to Danske Bank.

While that approach means policy will be left on hold, Danske also thinks that the Norges Bank will “remove the cut probability embedded into the rate path entirely”, leaving it on course to lift rates next time there is a change.

“We pencil in the first rate hike around end-2018,” says Kristoffer Kjær Lomholt, senior analyst.

Amid the midsummer change in outlook, the Norwegian krone “seems fundamentally undervalued” at NKr9.44 to the euro, with Danske citing NKr8.43 as “a long term fair-value anchor”.

But that is not just because of improving economic data out of Norway, although labour market and Regional Network survey data are on the up.

Danske added: “While we don’t expect the Norges Bank, global growth or commodity markets to add much support to the krone near-term, broad-based euro weakness could trigger an implicit ‘krona-revival’ in the coming months.

“The Norwegian normalisation story, valuation and real rates remain clear krone positives, but the effects will likely be [more apparent in the] second half of 2017/first half of 2018.”

So, expect the Norges Bank’s midsummer meeting to be felt most once the seasons have changed.

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