Norway Hikes, but Sounds more Neutral

Norway's central bank, the Norges Bank, hiked key deposit rate by 25 bp today to 2%. It was a close call in terms of opinion surveys and the bank's board did consider keeping rates on hold. I had favored that scenario given some softness in recent data and the ongoing market turmoil.

The Norges Bank hiked rates twice in Q4 09 and this is the first hike this year. The immediate comments following the decision seemed to suggest a more neutral near-term outlook. The krone strengthened on the announcement. Euro support near yesterday's lows around NOK7.82 area held, at least initially.

The euro was trading near NOK7.8550 when the announcement was made. A break sees a quick test on NOK7.80. The euro appears to be finding a better bid in the early North American activity against the dollar.

Attention may shift now to Sweden. It has not hiked rates yet, but recent data and official comments suggest a rate hike in July is likely. That is to say that the official rate difference between Norway and Sweden may peak here and that the next official move may come from the Riksbank not the Norges Bank.