19 Jun 2014
Norges Bank would stay on hold – Danske Bank
FXStreet (Edinburgh) - Sverre Holbek, Senior Analyst at Danske Bank, expects the Norges Bank to keep intact its policy in today’s meeting.
Key Quotes
“We do not expect Norges Bank to touch interest rates or signal any imminent changes, so interest will centre on the interest rate path presented in the new monetary policy report”.
“In isolation, the drop in global forward rates would drag the interest rate path down relative to the March report: our calculations suggest that forward rates have fallen 8-50bp in the period Q3 14-Q2 17, which would take the bank’s path down 4-25bp over the same period”.
“On the other hand, banks have cut lending rates by around 20bp, which is pulling in the opposite direction, although part of this effect will have been cancelled out by higher money market rates”.
“Slightly higher inflation than expected will also pull in that direction, but this effect is only moderate”.
“Based on the Q2 oil investment survey, which indicates a sharp drop in oil investment next year, we also expect the central bank to revise down its growth forecast for 2015 to 2%, pulling the interest rate path down 5-15bp next year”.
“All in all, therefore, we expect Norges Bank to revise the interest rate path down by around 20bp in 2015 and 20-25bp in 2016 and 2017”.
“We do, however, expect the path to continue to indicate a certain chance of a rate hike in 2015, which is more aggressive than market expectations. However, as this seems to be in line with market expectations, we think market reactions will be muted if we are proven right”.
Key Quotes
“We do not expect Norges Bank to touch interest rates or signal any imminent changes, so interest will centre on the interest rate path presented in the new monetary policy report”.
“In isolation, the drop in global forward rates would drag the interest rate path down relative to the March report: our calculations suggest that forward rates have fallen 8-50bp in the period Q3 14-Q2 17, which would take the bank’s path down 4-25bp over the same period”.
“On the other hand, banks have cut lending rates by around 20bp, which is pulling in the opposite direction, although part of this effect will have been cancelled out by higher money market rates”.
“Slightly higher inflation than expected will also pull in that direction, but this effect is only moderate”.
“Based on the Q2 oil investment survey, which indicates a sharp drop in oil investment next year, we also expect the central bank to revise down its growth forecast for 2015 to 2%, pulling the interest rate path down 5-15bp next year”.
“All in all, therefore, we expect Norges Bank to revise the interest rate path down by around 20bp in 2015 and 20-25bp in 2016 and 2017”.
“We do, however, expect the path to continue to indicate a certain chance of a rate hike in 2015, which is more aggressive than market expectations. However, as this seems to be in line with market expectations, we think market reactions will be muted if we are proven right”.