Welcome to a short and sweet Scandi special.

After years of working at the biggest bank in the Nordics, I have developed a strong understanding of the rate path model of Norges Bank and we have developed a “cheat sheet” that can live track the path, if it was to be hypothetically updated daily. The overwhelming conclusion is that the path has shifted in a dovish direction since the MPR-1 meeting in March in contrast to global developments.

There are six main variables in the rate path model and they have moved in various directions since March, but importantly inflation is running below the assumptions made by Norges Bank, and the NOK has a stronger impact on the path compared to the oil price, which makes for a small, but noticeable hawkish contribution to the path.

On the other hand, the Norwegian domestic mainland economy has surprised to the downside, which will pull the rate path lower. Overall, we find a net dovish adjustment of roughly 12bps for September, which is at odds with the hawkish repricing. The Sep+3 NOK FRA is up some 13bps since the meeting in March, while our indicators suggest that it should have repriced in the opposite direction. 

Receiving NOK rates (in spreads to peers e.g. in Sweden) makes sense into the meeting in June.

Find all sub-models and observations in the appendix at the bottom.

Chart 1: NOK rate path cheat sheet and the live update