HALISTER1: NORGES BANK PREVIEW: 25bps Rate Cut, Lower Path Widely Expected

NORGES BANK PREVIEW: 25bps Rate Cut, Lower Path Widely Expected

(Bloomberg) -- Norges Bank expected to cut its key rate by 25bps, lower the rate path this week as lower oil prices have hurt Norway’s economy and as monetary easing abroad has driven foreign rates lower, analysts say in client notes.
  • 18 of 20 economists surveyed by Bloomberg see the bank lowering the deposit rate to 0.5%; one expects a cut to 0.25% while one sees no change
  • Norges Bank (NB) decision due at 10am CET March 17
  • Roubini Global Economics (Alex Waters)
    • Anticipate a cut, although the risks are finely balanced
    • Despite deteriorating petroleum-sector investment and a Regional Contact survey that doesn’t offer much hope for the next six mos., Norges Bank may have reservations about cutting
    • A recession in Norway is a real risk, but an expansionary fiscal package is about to be unleashed
    • Norges Bank has said it’s penciling in a cut in 1H16, so it may want to wait and see whether the fiscal package makes a difference
    • Also, unemployment, although high, is stable
  • Nordea (Erik Bruce)
    • Expect 25bps rate cut
    • Believe the bottom of the rate path will be lowered to near 0.2% late 2016, and that the rate path will signal a more than 50% chance for another cut to 25bps at the June meeting
    • Expect rates to fall and NOK to weaken if these expectations materialize
    • More
  • Danske Bank (analysts incl. Frank Jullum)
    • Expect 25bps rate cut, also see central bank lowering rate path, signaling 80% probability of a reduction before 4Q16
    • The largest risk factor is that NB fully incorporates the wage expectations from the regional survey; if so, the rate path will include a 100% probability of another rate cut, with the likelihood of an even more aggressive rate path
    • Estimate mkts are pricing in ~75% probability of a 25bps March rate cut, an accumulated 30bps rate reduction for the June meeting and an accumulated 46bps worth of cuts over 12 mos.
    • Expect EUR/NOK to rise on the announcement though mkt pricing limits upside potential
    • More
  • Goldman Sachs (Lasse Holboell Nielsen)
    • Norges Bank is more likely to cut its rate than not in March, but the rates market is pricing in too much downside
    • Expect NB to cut its policy rate by 25bps to 0.5% next wk and no subsequent easing; see ~40% chance of no cut
    • Expect MPR to contain relatively few revisions to growth, inflation and the policy rate path
    • More
  • Handelsbanken (Marius Gonsholt Hov)
    • Expect a 25bps rate cut
    • Also believe Norges Bank will signal a slight probability for rates hitting zero by the end of the year
  • SEB (Erica Blomgren, Stein Bruun)
    • Recent economic developments have been broadly as expected, suggesting the bank should be faithful to its current rate path, which implies 1.5 rate cuts, by cutting the rate by 25bps
    • An on-hold decision could become a credibility issue for the bank
    • Expect the short end of the rate path to be lowered by around 5-10bps, implying a ~75% probability for another rate cut this year while the long end of the path should see a somewhat larger downward adjustment
  • Nomura (Yujiro Goto)
    • Expect Norges Bank to cut rates by 25bps
    • As there have been signs that the negative impact of the decline in oil prices is spreading into the manufacturing and retail sectors, the risk bias has shifted to be more pessimistic
    • Rate path likely to be downgraded slightly, pointing to the likelihood of yet another 25bps cut
    • Still see limited upside risk for EUR/NOK above 9.50 in the near future
  • DNB (Kyrre Aamdal)
    • Expect a 25bps rate cut and a rate path indicating a cut after summer 2016 and slower increases in 2018
    • Expect Norges Bank to cut policy rate to 0.25% in Sept. and stay there
    • Since Dec., rates and inflation forecasts abroad have fallen; NOK is a bit weaker, oil price lower, rate spreads higher; domestic growth seems weaker, but unemployment in line with forecasts and productivity growth is lower
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
1037Z NO (Norges Bank)

People
Alex Waters (Roubini Global Economics LLC)
Erica Blomgren (Skandinaviska Enskilda Banken AB)
Erik Bruce (Nordea Securities)
Frank Jullum (Danske Bank A/S)
Kyrre Aamdal (DNB ASA)

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