Policy Stance Remains Restrictive
TD Securities expects the central bank’s statement to note that restrictive monetary policy is still needed. It expects the bank to say the balance of risks will be monitored before any next move on the policy rate. TD Securities also expects projections to reflect uncertainty around the outlook. It anticipates less commitment to a forecast of 1–2 rate cuts this year, with any cuts linked to the duration of the conflict. Looking back at the analysis from early 2025, we recall the significant uncertainty that kept Norges Bank’s policy rate at a restrictive 4.00%. The concerns over sticky inflation and the energy price shock were valid, leading to a prolonged period of caution from the central bank. This hawkish hold shaped market positioning for much of last year. That forecast for one to two rate cuts in 2025 eventually materialized, with the policy rate today standing at 3.50%. Inflation has since cooled significantly, with the latest figures from February 2026 showing a headline rate of 2.1%, just above the bank’s target. This was helped by Brent crude prices, which after spiking last year, have since settled into a more stable range around $85 per barrel.Trading Implications For Rates And FX
For those trading interest rate swaps and futures, this suggests the path of least resistance is for further, albeit gradual, rate cuts. With fourth-quarter 2025 GDP growth coming in at a tepid 0.2%, the central bank has a clear reason to continue easing policy to support the slowing economy. The strategy now should focus on positioning for a measured cutting cycle over the remainder of 2026. In the foreign exchange market, this creates opportunities for options on the Norwegian Krone. As Norges Bank has begun its cutting cycle, the EUR/NOK has drifted higher towards 11.55, but the bank’s cautious pace may limit significant Krone weakness compared to other currencies. This environment is favorable for traders using volatility strategies or selling covered calls on the Krone, betting that any further depreciation will be slow and orderly. Create your live VT Markets account and start trading now.
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