Diverging policy paths lend support to the krone

Price pressures generally remained subdued in Switzerland and the Nordic economics in February. Core inflation is still stubbornly low in Switzerland and while it is higher in Sweden, it has now been stable in a narrow band since the start of last year. We expect slowing activity to keep inflation in check in both countries and to mean that policymakers leave interest rates on hold into 2021. However, Norway is increasingly looking the odd one out. Core inflation climbed to a 29-month high in February, and with the mainland economy growing robustly, the Norges Bank is almost certain to hike rates at its policy meeting on 21st March. The divergence in performance has seen the Norwegian krone (NOK) rise by 2.5% and 4.5% against the euro and the Swedish krona, respectively, since the start of January. However, if oil prices fall, as we expect, it is likely to give up these gains in the second half of 2019.