Due to Norge's dovish tone, NOK gains likely to be short-lived?

NOK is weaker than Norges Bank expected. And this offers new possibilities of keeping its powder dry . The import weighted exchange rate (I44) is currently roughly 3.5% weaker than Norges Bank projected in its Monetary Policy Report (MPR) in June. 

And it is taken into consideration for the inflation outlook and therefore affects the rate decision. Of course the projections are three months old and there is a high chance that they will be adjusted in today's MPR together with the growth projections. However, what is Norges Bank's pain threshold for the exchange rate? 

That is difficult to say but a rough estimate is possible using the I44. If it is currently 3.5% above the levels projected by Norges Bank in June (i.e. the krone is weaker) and as at 34% the euro has by far the highest weighting within these I44 one could assume that EUR-NOK would have to trade just below 9.00 to correspond roughly to Norges Bank's projections from June.

That means Norges Bank might argue today, "As the krone is weaker than expected in June anyway everything will be left unchanged and accept some appreciation as a result of the unchanged rate decision. The appreciation will probably be offset following the initial reaction in particular if the growth projections are revised downwards and we continue to signal further rate cuts in the rate path". 

"In view of high inflation rates it is preferrable to keep the door open and a rate cut can still be used at a later stage should the growth slowdown intensify or the krone appreciate too strongly after all." That is exactly what is going to happen today. Due to the dovish tone NOK gains are likely to be short-lived even if the key rate remains unchanged", says Commerzbank.