Norges Bank announced a 25 basis point hike on Thursday, sending the overnight deposit rate to 2.50%. The market appeared disappointed and the Norwegian krone weakened in its initial reaction. Economists at Commerzbank expect the NOK to remain under pressure until next week’s inflation data.
Signs of a cooling economy
“Norges Bank expects the rate of inflation to decrease in the future. Moreover, there are signs that the economy is slowly cooling. Norges Bank’s earlier rate hike should also be increasingly felt.’
“It remains to be seen whether things will ultimately work out as planned. Uncertainty on this front remains high, as Norges Bank itself admits. For this reason, the market is likely to question whether Norges Bank has reduced the pace of rate hikes too soon.
“The market is likely to be very interested in next week’s October inflation data release and signs that inflation may indeed have peaked. Until then, however, the market may remain skeptical, so further recovery is likely to be difficult for NOK.