Norges Bank Preview: ‘Unchanged’ and no new signals – Danske Bank

In view of the analysts at Danske Bank, Norges Bank (NB) is widely expected to leave the sight deposit rate unchanged at 0.50% at Thursday’s meeting and reiterate its ‘on hold’ stance.

Key Quotes

“On balance, there is little reason to expect NB to change its signals at this stage. NB will receive several important releases ahead of the June meeting (e.g. inflation, Regional Network Survey, GDP and oil investment survey), leaving NB in a good position for awaiting more clarity on the outlook before modifying its communication. Also Thursday’s meeting does not include a new monetary policy report/rate path.”

“Expect little market reaction; but risks are skewed to the upside

While we and markets do not expect any market reaction on Thursday’s announcement, there is a small probability that NB acknowledges a lower probability of inflation falling further near term and that spare capacity seems lower than projected. As markets – contrary to the NB rate path - do not price any rate cut probability, the effect of this communication would be somewhat higher rates in not least 2018 and a stronger NOK. Risk-reward, therefore, suggests positioning for a moderately steeper FRA curve and a stronger NOK, even if we stress the NOK near term has been driven by external developments that seem more challenging. From a long-term strategic perspective, however, we still find value in gradually building up long NOK exposure.”