Norges Bank, Riksbank & SNB Reviews

Analysis details (14:10)

Norges Bank

• As expected, Norges Bank hiked by 25bp to 4.25%. In addition to this, the accompanying verbal guidance points to one more policy hike which is “most probably” to be delivered in December. In-fitting, the repo path was lifted to a Q1-2024/Q2-2024 peak of 4.44% (exp. ~4.35%, prev. ~4.20%); alterations which imply a rate peak at 4.50% compared to the 4.25% desks were expecting pre-release. Though most expected the Norges Bank to ascribe further probability to additional tightening. On the NOK, there were some outside expectations for the path to be lifted much more significantly to imply a peak near 4.75% given currency pressures, but interestingly the statement regards the Krone as being “somewhat” stronger than projected in June. Overall, the decision to hike was as expected and while the statement/path and market reaction took a hawkish slant it is becoming clear that barring an economic shock occurring the Norges Bank is near the level it will ultimately hold rates at for a prolonged period of time i.e. a higher for longer approach.

Riksbank

• The 25bp hike to 4.00% was as-expected, but the accompanying policy rate forecasts only infer around a 40% chance of a hike as of Q3-2024 from current levels, and as such a marked initial dovish reaction was seen. Additionally, pressure perhaps stemmed from the lack of any measures to address the SEK’s pronounced weakness from a monetary perspective, given EUR/SEK was printing all-time lows in the sessions before the announcement. However, around five minutes after the monetary policy release the Riksbank unveiled that it is going to be hedging FX reserves by selling USDs and EURs from September 25th for four-six months. A move that is designed to limit the Bank’s financial losses if the SEK appreciates and is not being undertaken for monetary purposes. Following the announcement, marked SEK appreciation occurred with the initial dovish move entirely unwound and resulted in EUR/SEK falling to an 11.7582 trough. Note, the Riksbank also announced that it will now hold eight meetings a year and every other gathering will have an MPR/new forecasts.

SNB

• Elected to defy the majority of desk views and circa. 65% market pricing by leaving its policy rate at 1.75% vs. expectations for a 25bp hike; though some respondents and the remaining 35% of the market looked for such an outcome. The hold was justified by the observation that the significant tightening of monetary policy in recent quarters is countering remaining inflation pressures. But, interestingly, the accompanying inflation forecasts were largely unchanged across 2024 and CPI does not return to the 0.0-2.0% target band until Q1-2025. It remains to be seen if further tightening will take place at the December gathering when the assessment will undoubtedly, barring any other unforeseen events, focus on what impact the recent energy upside and the June rental reference rate increase has had on prices; on the latter, the rental increase is not observable within inflation data until the November report due on December 4th before the following week’s policy announcement. A view echoed by Chairman Jordan subsequently who said they will decide “in December” if further action is merited. Finally, the SNB reiterated its language around the CHF and intervention stating that it remains willing to be active in the foreign exchange market as necessary and the focus is on selling foreign currency. Interestingly, in the Q&A section Jordan described the Franc as having had a “nominal overvaluation”, a line which drew attention as the SNB has steered clear of currency descriptions in recent gatherings. However, this assessment is not particularly surprising given the CHFs YTD performance.

21 Sep 2023 - 14:10- Fixed IncomeData- Source: Newsquawk