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Norwegian Krone slips as underlying inflation falls but rate hikes loom

Underlying CPI cooled to 2.7% year over year in June, below Norges Bank and consensus projections, yet BBH expects another hike with the policy rate already above neutral.

Reported · Written up by our desk · Major Pairs

Brown Brothers Harriman highlighted broad Norwegian Krone weakness after Norway’s underlying inflation fell to an 18-month low, coming in below Norges Bank and market expectations.

BBH pointed to underlying CPI dropping to 2.7% year over year in June, compared with 3.4% in May and below a 3.3% projection by both Norges Bank and consensus.

The bank said it doubts a single softer print will change the Norges Bank’s hawkish bias, noting inflation has been above target for several years and supporting further tightening.

BBH expects one more rate increase to 4.50% by year-end, arguing it is a headwind for NOK because policy is already above the bank’s neutral rate estimate, between 2.25% and 3.75%, and Norway’s output gap is slightly below zero.

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