The Norwegian krone has been on a winning streak since November 2020, despite the surge in Covid-19 infections over the course of the winter as the Norges Bank secured its position of the most hawkish central bank in the DM space.
Back then, it was the first DM central bank to signal a rate hike in H1 2022, but soon they brought their guidance forward to a rate hike as soon as Q4 this year, further aiding the krone’s recovery as it now trades at pre-pandemic levels against the euro. Today’s policy decision by the Norges Bank has done little to change the krone’s course, as the press statement mostly echoed the March meeting: much of the adult population is expected to be vaccinated by the end of the summer, suggesting economic activity picks up through the year and further justifying the rate hike in the latter half of 2021.
Norges Bank’s hawkish status has sent the Norwegian krone on a consistent rally since Q4 2020
In the statement, the central bank touched upon the surge in virus cases over the last few months and the tightening of containment measures which restrained the recovery and pushed up the number of furloughed workers. Recently, infections have fallen back, however, and the government has outlined a four-step plan to reopen the economy that is based on data rather than dates. The first step, which the government implemented on April 16th, was to reverse the strict measures on the national level introduced just before Easter. While the government is unlikely to take the second step of easing in May due to the speed of vaccinations, it is likely that most restrictions will be eased by the end of Q2/ beginning of Q3, which is broadly in line with the timelines of the UK and most eurozone nations.
On balance, things continue to look bright for the Norwegian krone, and while today’s meeting was more of a formality, it confirmed to markets that the first rate hike is still incoming in the second half of the year.
Author: Ima Sammani, FX Market Analyst