The Norwegian krone has been quite volatile in January. Through December, the EUR/NOK pair rallied to 10.5 from 9.65. Nevertheless, it had subsequently dropped below 9.75. The sharp moves were largely due to gyrations in the oil price, noted Lloyds Bank in a research report.
However, looking through this near-term volatility, there continues to be a strong case for the central bank to continue hiking interest rates. December inflation had remained at 3.5 percent, well above the central bank’s target. Also Governor Olsen had repeated that the next hike might come as soon as March.
In the meantime, the ECB is not likely to tighten policy rates until after “the summer” and, although ‘core’ inflation in the euro area is still subdued, a 10 basis point hike in the deposit rate is expected in December.
“Given that the Norges Bank currently has a more hawkish policy stance than the ECB, the interest rate outlook may pressure EUR/NOK. In addition, we believe oil prices will continue to be a supportive factor for the krone and forecast EUR/NOK to fall towards 9.40 by end-2019”, added Lloyds Bank.
