A rate hike by the Norges Bank in September would make it the first G10 central bank to start to raise interest rates after the pandemic, by a comfortable margin. As a result, the Norwegian krone is likely to gain ground on the euro and the Swedish krona by the end of the year, in the view of economists at Capital Economics.

Putting the Norges Bank’s looming hikes into context

“A September rate hike would make Norwegian policymakers the first in the G10 to start to normalise policy by some margin. While Norwegian policymakers have made no secret of their intentions, and a series of rate hikes are priced into markets, we still think there is scope for gains in the NOK as reality bites. We expect it to be the best performing G10 currency against the euro between now and year end.”

“Given that the Riksbank has tended to follow the Norges Bank’s lead in previous tightening cycles, with a lag of between 3 and 10 months, looming hikes in Norway raise question marks over the policy outlook in Sweden. Another paradigm shift and rate hikes in Sweden cannot be ruled out. All told, while investor attention is understandably focused on when the Fed will start to think about tapering its asset purchases, the Riksbank is the ‘one to watch’.”