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Norges Bank stays on hold for now - TDS

FXStreet (Delhi) – James Rossiter, Senior Global Strategist at TD Securities, notes that as widely expected, the Norges Bank kept its key policy rate on hold at 0.75% today but the research house anticipate another 25bps cut at their mid-December meeting, and one more cut in 16Q1.

Key Quotes

“The Norges Bank remained on the sidelines today, holding its key policy rate at 0.75%. The accompanying statement highlighted that the real economy has been weaker than expected, in particular with unemployment rising sharply and household consumption remaining weak. Offsetting this was a weaker-than-expected Krone and new fiscal spending.”

“In the past two months we’ve seen important expansion on both the monetary and fiscal fronts in Norway.”

“First, at its September policy meeting, the Norges Bank launched what was effectively a forward-guidance policy of lower for longer. As the chart shows, rates are now forecast to remain around 0.6% until 2018, marking a sharp departure from previous forecasts where rates started moving up in 2016.”

“Second, the Norwegian government announced an expansive 2016 budget last month that dipped slightly into its reserve fund to help support the economy.”

“With stimulus in the pipeline, and the lack of a Monetary Policy Report in which to explain any policy changes, the Norges Bank was comfortable to sit back on the sidelines. However, we do not think that they’re done easing yet. Both TD and markets now fully anticipate a cut in the key policy rate to be cut to 0.5% at its 15 December meeting, and we even anticipate one further cut in 16Q1, especially if oil prices remain weaker into the start of next year as we expect.”

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