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Investing.com -- Norway’s central bank is likely to keep interest rates unchanged at its meeting on Thursday, following a surprise rate cut in June, according to ING.
The bank points to several factors supporting a pause in the easing cycle, with underlying inflation rebounding to 3.1% in June and July after moderating to 2.8% in May. Headline inflation also accelerated to 3.3% in July, further strengthening the case for maintaining current rates.
The Norwegian krone’s performance is another consideration for Norges Bank, with the currency experiencing a 4% trade-weighted decline since June. This weakening presents a hawkish argument against further rate cuts at this time.
ING also notes that central banks typically exercise caution ahead of electoral events, with Norway’s parliamentary vote scheduled for September 8. The latest polls show a center-left coalition slightly ahead.
Thursday’s meeting is an interim one, with only a short statement expected and no update to economic projections.
Markets are fully pricing in a September rate cut and an 80% chance of another reduction in December, aligning with ING’s forecast. However, the bank acknowledges that higher-than-expected inflation and the krone’s weakness could limit the easing cycle to just one cut by year-end.
The EUR/NOK exchange rate has approached 12.00, driven by euro strength and oil price declines. ING expects Norges Bank to deliver a slightly more hawkish tone at this meeting and forecasts the EUR/NOK to return to 11.60-11.70 by year-end.
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