Norges Bank kept its policy rate at 4.25% in June, while nudging its rate path higher and implying a greater probability of another increase. The bank’s year-end projection now sits just over 4.5%, compared with a previous range of between 4.25% and 4.50%, signalling that policymakers still see inflation risks on the upside.
July inflation readings were mixed, yet both headline and core measures remain above the 2% target and a clear disinflation trend is hard to establish. Against that backdrop, the next decision is expected to leave rates unchanged, with any tightening potentially deferred until September when updated forecasts are published, even as the central bank maintains a cautious, hawkish tone.
Policy Outlook and Inflation Risks
With Norges Bank’s next monetary policy meeting scheduled for tomorrow, August 13, 2026, we expect the central bank to keep its policy rate on hold at 4.25%. Although Norway’s core inflation rate eased to 3.4% recently, it remains well above the official 2.0% target, keeping policymakers highly alert. This sticky inflation means the bank will likely deliver a very hawkish tone tomorrow, keeping the door wide open for a final rate hike to 4.5% in September.
Market Strategy: Derivatives, FX, and Yield Spread
For interest rate derivative traders, we recommend positioning for this hawkish pause by looking at Forward Rate Agreements (FRAs). Because the market is currently pricing in a low probability of a hike tomorrow, buying September FRA contracts offers an attractive risk-reward ratio as the market adjusts to Norges Bank’s vigilant guidance. If the bank firmly signals a September hike, these short-term yields will quickly press higher.
In the foreign exchange options market, we suggest utilizing EUR/NOK put options to benefit from a potential Krone rally. Historical data shows that when Norges Bank maintains a higher-for-longer stance while other central banks cut, the Krone tends to strengthen, similar to its 3% gain against the Euro during the hawkish pause in late 2023. Buying these put options allows us to protect against sudden market moves while capturing the Krone’s upward momentum.
We also suggest monitoring the yield spread between Norwegian government bonds and German bunds, which currently sits at a wide 150 basis points. This supportive yield differential should attract carry-trade flows back into the Norwegian Krone over the coming weeks. Entering into derivative swaps that exploit this widening spread will allow us to capture steady returns as the Krone stabilizes.
