Today’s Norges Bank policy decision was nothing to write home about: policy remained unchanged, and the Norwegian krone was unmoved.
While markets were not expecting fireworks at today’s meeting, the Norges Bank failed to address the rising case count in the accompanying press statement and only discussed that “economic developments have so far been broadly in line with the projections in the December Report”. The Norges Bank seems to hold a similar stance as the European Central Bank did in December on rising short term risks, preferring to focus on vaccinations and the recovery stage instead. The statement maintained a similar tone to last time, including the indication that the policy rate will likely remain at today’s level for some time ahead. The central bank also reiterated its view on the policy rate forecasts from the December Monetary Policy Report, signaling that the current rate will be followed by a gradual increase from the first half of 2022 as activity approaches a normal level. Again, this is nothing markets did not already know.
Since the December meeting, the Norwegian economy received a boost from higher oil prices, which resulted in a rapid appreciation in the krone.
Policymakers seemed less concerned about the recent NOK strength in today’s statement than what may have been suggested previously, however, it isn’t normal for central banks to explicitly mention undue currency strength in this form of communique. Instead, concerns about the recent bout of NOK strength may be addressed in upcoming public events.
EURNOK responded adequately to the policy announcement: no fireworks means no surprising move for NOK today. The announcement was a so-called interim decision, with no fresh forecasts and press conference. Looking forward, the Norwegian krone is likely to continue to find support in the pickup in global demand and a continued rally in crude oil markets, although some hiccups along the way may be likely as downside risks remain until the vaccination rollout allows for a gradual reopening of Norway’s economy and its major trading partners.
EURNOK unmoved after uneventful interim policy decision by the Norges Bank
Author: Ima Sammani, FX market analyst