EUR/NOK, USD/NOK flows: Norges exercises hike, central view is now a pause

Norges Bank opts to go ahead with a 25bp hike to 4.5%, exercising its option from the June meeting to do so at one of the forthcoming meetings. While inflation had moderated, the Bank decided the risks had not changed materially so the adjustment was warranted. It reiterates that policy is likely to remain elevated for some time and it is prepared to raise further if needed.

That central stance is reflected In the forecasts – “the policy rate remains close to the current level for a period ahead before declining somewhat”. Risks around that will key off inflation developments especially ‘external price impulses.

While the market was 50-50 on this meeting, it does have another hike priced in and a further one half hedged, so it is already leaning to the hawkish side of the Norges’ central scenario, albeit with the Bank clearly focused on the global backdrop for direction. As it notes, its policy is already restrictive (elevated), in contrast to some other CBs which are only getting to or slightly above neutral.

NOK gets a lift but the net impact of the meeting is within overall short-end pricing so shouldn't be a large driver. More critical near-term is whether US-Iran talks progress or hit a dead end, and where Brent goes from its current $100 pivot point