A deeper slump in oil prices would thwart chances of an imminent return towards 11 – SocGen

The NOK has limped to the bottom of the G10 rankings again in December after a decent effort to claw back lost ground in November. Economists at Société Générale analyze Krone’s outlook ahead of the Norges Bank meeting.

Norges Bank tightening cycle over?

Unless inflation and growth forecasts are revised up, the bank may maintain its view that ‘the policy rate is likely close to the level needed to tackle inflation’. A further increase may be judged unnecessary. This scuppers the prospect of a further widening of the rate differential with the ECB from the current 25 bps.

All else being equal (oil prices, risk sentiment), the implied widening in rate differentials next year in theory puts the NOK in good stead to mount a recovery against the Euro.

A deeper slump in oil prices would thwart chances of an imminent return in EUR/NOK towards 11.