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16 Sep 2013
Norges Bank monetary policy increasingly untenable, look to NOK/JPY
FXstreet.com (London) - When the Norwegian central bank meets on 19 September, it is unlikely that it will hike rates. But rising inflation is starting to make this loose monetary position increasingly untenable.
Last week’s August Norway consumer price index inflation (CPI) printed substantially above expectations for the second consecutive month. Headline CPI rose from 3.0 percent to 3.2 percent, significantly defying the 3 percent consensus expectations, while the CPI-ATE rate (CPI ex energy and taxes) jumped from 1.8 percent to 2.5 percent (consensus of 1.9 percent). The 3.2 percent figure now brings the core rate up to the Norges Bank’s target level for the first time in four years.
The push-pull of tightening monetary policy versus growth was increased when a survey on 10 September showed companies experienced weaker than expected growth, triggering some Krone selling. However the bearish EUR/NOK trend remains intact.
Running out of capacity
Norges Bank had previously held a policy of pursuing loose monetary policy through depressed interest rates in order to provide growth conditions. It maintained that it could do so with the capacity to keep inflation depressed. However, the latest core CPI figures show that Norge Bank was wide of the mark in its inflation estimates – its June and September estimates of 1.44 and 1.33 respectively have already been beaten by 1.1-1.2 percent.
As such, it is highly likely that the Norges Bank will revise these inflation estimates at this week’s meeting. In doing so, it will make it increasingly difficult for the central bank to maintain its policy of holding interest rates down.
Should we see any shift in the stance taken by the Norges Bank, look to the NOK/JPY for a play on monetary policy, through a long USD/JPY, short USD/NOK pair trade.
Last week’s August Norway consumer price index inflation (CPI) printed substantially above expectations for the second consecutive month. Headline CPI rose from 3.0 percent to 3.2 percent, significantly defying the 3 percent consensus expectations, while the CPI-ATE rate (CPI ex energy and taxes) jumped from 1.8 percent to 2.5 percent (consensus of 1.9 percent). The 3.2 percent figure now brings the core rate up to the Norges Bank’s target level for the first time in four years.
The push-pull of tightening monetary policy versus growth was increased when a survey on 10 September showed companies experienced weaker than expected growth, triggering some Krone selling. However the bearish EUR/NOK trend remains intact.
Running out of capacity
Norges Bank had previously held a policy of pursuing loose monetary policy through depressed interest rates in order to provide growth conditions. It maintained that it could do so with the capacity to keep inflation depressed. However, the latest core CPI figures show that Norge Bank was wide of the mark in its inflation estimates – its June and September estimates of 1.44 and 1.33 respectively have already been beaten by 1.1-1.2 percent.
As such, it is highly likely that the Norges Bank will revise these inflation estimates at this week’s meeting. In doing so, it will make it increasingly difficult for the central bank to maintain its policy of holding interest rates down.
Should we see any shift in the stance taken by the Norges Bank, look to the NOK/JPY for a play on monetary policy, through a long USD/JPY, short USD/NOK pair trade.