Norges Bank To Hike In May And Keep The Door Open For More

We expect an out-of-consensus 25bp rate hike by Norges Bank on 7 May, due to broad-based inflation concerns amplified by the latest oil market developments. A hold in May would likely only defer the move to June. We expect another NOK rally, though its sustainability would depend heavily on resilience in global risk sentiment

A hike in May, or June at the latest

We expect a 25bp rate hike to 4.25% by Norges Bank on 7 May. Consensus is leaning towards a hold, and markets are pricing in around 55% implied probability of a hike. Should policymakers stay put, a June hike would be highly likely.

Back in March, policymakers sent a clear hawkish message, saying “it will likely be appropriate to raise policy rates at one of the forthcoming monetary policy meetings”. For the first time, Norges Bank also published minutes of the meeting, which showed that “some” members were ready to hike rates in March. The monetary policy committee is only formed of five members, meaning that it was a very close call for a hold.

However, more recent geopolitical developments and renewed strength in oil prices point to greater urgency. We also expect Norges Bank to keep the door wide open to further tightening, with an outside risk that officials explicitly indicate another hike could be likely over the coming meetings.

Inflation concerns are more entrenched than elsewhere

Norway’s headline inflation rose from 2.7% to 3.6% year-on-year in March, in line with consensus and slightly above Norges Bank’s 3.5% projection. While underlying inflation was a key guide for policy decisions before the war, the 3.0% core print for March is not decisive at this stage, as it will take time for second‑round effects to materialise.

It is also important to note that, unlike the European Central Bank or the Riksbank, Norges Bank was already flagging concerns about inflation dynamics before the war. Some members stressed in March that inflation had remained above target for some time, with elevated rents cited as an example.

The current energy shock has therefore exacerbated pre‑existing inflation concerns. Against that backdrop, we think Norges Bank is unlikely to adopt the ECB’S wait‑and‑see approach and will instead seek to keep market pricing tilted on the hawkish side. In our current forecast, we do not assume a follow‑up hike after May, but the risks are increasingly skewed toward a more hawkish profile.

Inflation a bigger problem in Norway even before the war

*CPIF used for Sweden

Source: Macrobond, ING

NOK: Norges Bank will help, but risk sentiment remains key

Markets are pricing in 14bp, or about 55% implied probability of a hike at this May meeting. For the moment, consensus is leaning towards a hold. We therefore expect a sizeable bullish response from the Norwegian krone if we are right with our hawkish hike call. Pricing by year-end is about 50-60bp, but markets may be tempted to add another hike to the profile.

Ultimately, though, NOK gains can only prove sustainable if risk sentiment shows more resilience. While higher oil prices have underpinned NOK strength, once they reach levels that can significantly unnerve global equities (especially US ones), then NOK tends to sell off.

For now, we are forecasting as baseline a scenario where a US-Iran deal is reached in May, allowing a partial reopening of the Strait of Hormuz. That can offer support to risk assets while keeping oil prices significantly above pre-war levels.

Paired with Norges Bank tightening, that is a scenario that justifies more EUR/NOK weakness. We see downside risks to our latest forecast of 10.85 for the second quarter and 10.70 by year-end. A break below 10.80 by June is looking increasingly likely, and we could already see 10.70 being tested within the next three months.