NOK flows: NOK rallies on Norges Bank rate hike
Norges Bank hikes the policy rateto 4.25%. NOK rallies as market had been split on probability of a hike. Scope for further NOK gains medium term
The NOK has rallied as Norges Bank hikes the policy rate to 4.25% from 4.0%. The move was around 60% priced in ahead of the decision, but the majority of forecasters were looking for no change. So far the FX response has been quite modest, with EUR/NOK dropping 7 figures to 10.87, but still only losing half of the gains seen yesterday on the back of the oil price decline. The Norges Bank statement referenced the statement in March, which indicated that inflation was too high and rate hikes would be necessary, saying the situation had not materially changed since then.
The NOK still looks good value from a long term perspective, even if the oil price continues to fall. Yield spreads are attractive, particularly against other European currencies, notably the CHF, SEK and EUR, and the underperformance in recent years means there is plenty of scope for further recovery.
