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Norges Bank seen cutting rates by 25 bp – TDS

FXStreet (Edinburgh) - Strategists at TD Securities expect the Nordic central bank to cut its benchmark rate by 25 bp at its meeting ahead in the week.

Key Quotes

“We expect Norges to cut the deposit rate from 1.00% to 0.75%, in line with expectations (but not 100% priced), but we would not completely rule out a 50bps surprise and think the rate profile will drive the market to price in more easing than the 35% chance it sees of one further cut by mid-2016”.

“While the policy-relevant CPI-ATE is sitting well above the 2.5% target, at 2.9% y/y in August, this isn’t their only concern”.

“Like other commodity exporters, the currency has seen a significant depreciation in concert with lower oil prices, resulting in elevated inflation while the real economy stalls”.

“Fiscal policy has played an active role trying to stabilise the economy, but the Norges Bank’s latest Regional Network Report suggested that activity in many sectors was stagnant or slowing”.

“As such, we think with the market only pricing in around a one-third chance of further easing by mid-2016, it is woefully underpricing the risks”.

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