In June, NB proved to be courageous and sent out another restrictive signal ahead of the summer break. It hiked the key rate by 50 bps to 3.75% and signalled a further rate step for August. It expects the terminal rate to be 4.25%. If inflation remains stubbornly high it is quite possible though that Norges Bank takes even further action and that the terminal rate will be even higher in the end.

A lot can happen until then though. But high price data in conjunction with economic data that points towards a reasonably robust economy are likely to principally support NOK in view of Norges Bank’s determined approach as this increases the likelihood of a higher terminal rate.