Norges Bank Can Still Hike This Year

Cooler inflation means a hold is likely at Norway’s central bank meeting on 13 August. Our conviction on further tightening has somewhat weakened, but we still lean in favour of another hike in autumn on the back of an underlying inflation rebound. We remain optimistic on NOK into year-end, even though upside room for front-end rates looks limited

Since Norges Bank’s hike to 4.25% in June, we have been expecting one more hike this year, with September as our baseline and some underpriced risk of a surprise move in August. Our baseline was September but saw some underpriced risks of a surprise August move. However, the latest inflation prints have weakened that conviction. We now see a very low risk of a 13 August hike and lower odds of a follow-up move in the autumn, although another hike remains our base case.

Inflation improvement may be temporary

Norges Bank focuses on two inflation gauges: headline CPI and underlying CPI-ATE. Headline inflation fell to 2.7% in June before rebounding to 3.0% in July. CPI-ATE also dropped to 2.7% in June, but then unexpectedly held at 2.7% in July. That is notably softer than Norges Bank's June projections, which envisaged CPI-ATE rising to 3.3% in June and remaining above 3.0% until mid-2027.

Underlying inflation undershot projections in June and July

Source: ING, Norges Bank, Macrobond

The issue is not whether Norges Bank would hike with CPI-ATE at current levels. We struggle to see a case for that. The last time CPI-ATE was below 3.0%, at 2.8% in May 2025, Norges Bank cut rates. Its published projections imply a similar reaction function around mid-2026, when it expected to begin easing.

The more important question is whether underlying inflation rebounds. The June 2025 rate cut proved a policy mistake because Norges Bank placed too much weight on a single inflation print. Inflation quickly moved back above 3.0%, highlighting a degree of month-to-month volatility that we think policymakers now take much more seriously.

Our estimates still point to CPI-ATE moving back above 3.0% this autumn. Recent base effects have weighed on inflation and could begin to reverse as early as August, partly because of the kindergarten price cap. Wage growth also remains elevated, with the 2026 wage settlement at 4.4%.

Hold in August, but another hike remains possible

We also think the bar for another hike is relatively low. Policymakers have consistently framed this tightening cycle as a response to persistent inflation rather than temporary shocks such as the Middle East conflict. Their June guidance amounted to a semi-commitment to further tightening, and we doubt that bias will disappear after only two benign inflation prints, particularly given the recent volatility in the data.

For this August meeting, we expect a rate hold with some acknowledgement of a tentatively improved inflation picture. But we do not expect Norges Bank to remove references to further tightening at coming meetings. Whether that language stays or goes will be the key hawkish-dovish signal for markets.

Our base case remains one final hike this year as inflation pressures re-emerge in the autumn and Norges Bank reinforces its anti-inflation stance. September is still our marginal favourite, although the November and December meetings give policymakers flexibility to wait for more data. We are, however, less convinced than before that further tightening will materialise. If underlying inflation fails to rebound, Norges Bank should gradually drop its tightening bias and shift towards signalling an extended pause.

More upside for NOK than front-end rates

The next few CPI releases will be critical for market pricing. OIS markets price just 3bp for August, rising to 14bp for September and 25bp by December. That suggests investors are not placing excessive weight on the latest inflation prints, but it likely also reflects spillovers from hawkish policy expectations in the US and eurozone.

We see limited upside for NOK front-end rates from current levels. Our conviction on another hike has diminished, and NOK rates could also benefit from dovish repricing in the US if the Fed remains on hold for the rest of the year. Another risk is that Norges Bank softens its hawkish messaging already in August, weakening market expectations for further tightening.

For NOK, we see some downside risks around this August meeting but not beyond the very short term. Another hike (our baseline) would strengthen an already attractive carry profile and reinforce support from improved terms of trade. But even if Norges Bank does not deliver another move, the impact on NOK versus EUR and USD may prove modest if markets are also forced to reprice the Fed and ECB in a more dovish direction. The broader oil and gas story remains supportive. Energy prices holding above pre-Middle East war levels should continue to favour NOK, particularly alongside attractive yields in a carry-friendly environment.

We’ve recently published a new set of FX views and updates in “FX Talking: Caught between war and Warsh”. We target a gradual descent in EUR/NOK to 10.75 by year-end.