Speaking of oil, we expected the Norges banks to raise policy rates by 25bp. The Interest rate path from March meeting explicitly commits to a hike. Yet, the policy adjustment is likely to be a ‘dovish hike’, considering the negative macro backdrop. Norway’s growth is hovering around 3% with strong labor market pressuring inflation (in-line with forecasts). With the hike fully priced in the real question is what is next? Global yields have fallen sharply as market pricing in easier policy from the Fed. Oil prices, despite risks to supply, prices have fallen 20% from April’s highs. Above a hike this week, markets are pricing in 6-7 bps of tightening for the rest of 2019. Interesting the Norges Board will only learn of the FOMCs strategy after their own decision. A dovish hike and pilling back calendar-based forward guidance will be a short-term negative for NOK (especially considering how short the markets are already in NOK).
By Peter Rosenstreich