Riksbank Takes a Hawkish Stance While Norges Bank Remains More Balanced, According to BofA

According to a note published by BofA Global Research on Thursday, their view on Riksbank and Norges Bank indicates that the Swedish central bank has adopted a more hawkish stance, while Norges Bank remains more balanced and has provided guidance for an interest rate cut in March. BofA expected Riksbank to lower its interest rate to 2.50%, but the guidance for 2025 was more hawkish than anticipated, predicting only one more interest rate cut in the first half of 2025.

BofA believes that Norges Bank's core inflation forecasts for next year have become more realistic, but still expects a quarterly cut pace starting from March, while noting that risks are still skewed towards fewer cuts. In currency markets, BofA finds the SEK's strengthening understandable but thinks it is exaggerated and predicts an increase in the NOK-SEK exchange rate, stating that both currencies are vulnerable to external pressures like tariffs.

"We expect relative monetary policy to push the NOK-SEK exchange rate a bit higher from here, and we still consider that both NOK and SEK are at low or approximately fair levels against the EUR. Aside from Riksbank, the SEK's strengthening seems exaggerated to us," the note stated.