Date: 15 Feb 2018

At 1700GMT on Thursday Oystein Olsen, Governor of the Norges Bank, Norway’s central bank, will give his annual address in Oslo. After a more hawkish tone in December, last month saw the Norges Bank keep its key interest rate at 0.5 per cent as had been expected. Yet it’s worth noting that the Norges Bank’s view on interest rates had previously evolved through 2017 from initially suggesting further rate cuts were possible to a situation where, in December 2017, the Norwegian central bank was talking of a rate hike within 12 months. Unfortunately a couple of flies have since arguably appeared in the economic ointment. Data released last Friday showed that while analysts had expected a 1.5 per cent year-on-year rise in January in Norwegian core inflation, it only printed at a 1.1 per cent increase. Additionally, although Statistics Norway also revealed on Friday that mainland economic growth (which excludes oil, gas and shipping) expanded 0.6 per cent in Q4 2017, matching the average expectations of analysts polled by Bloomberg, when the oil, gas and shipping sectors were included, Norway’s economy shrank by 0.3 per cent in Q4 2017. That latter contraction was in sharp contrast to the 0.6 per cent expansion that had been expected by economists polled by FactSet. But, and the but may be significant, Norway’s gross domestic product did increase by 1.8 per cent over the whole of 2017, a vast improvement on 2016’s 1.1 per cent increase.

The question is how will Olsen see these figures which, in the round, might suggest the Norwegian economy isn’t doing quite as well as the Norges Bank had hoped when it tweaked its forward guidance at the end of last year? Perhaps the risk, which might, if realised, lend itself to some degree of firmness for the Norwegian krone (EURNOK, NOKSEK, USDNOK) is that Olsen still sees a Norwegian economic glass that is half-full rather than half-empty. Perhaps, mindful of seemingly somewhat stronger global growth prospects, Olsen could make it plain that Norway’s central bank is not going to take too much notice of the backward-looking data that came out last week. Or not? Either way traders, who look at the NOK, might at least agree Olsen’s speech will be worth listening to.

Written by Neal Kimberley, External Currency Analyst.