Norway reaches the end of its tightening cycle

While this morning’s decision by the Norges Bank to leave its key policy rate unchanged at 1.25% was in line with expectations, the dovish shift in its tone suggests that the last bastion of hawkishness among advanced economies has fallen. In contrast to the market, we think that the Bank has already reached the end of its tightening cycle and we now forecast interest rates to remain on hold until at least 2021.