Norway faces key interest rate decision

Norway’s central bank is to announce its new rates at 2pm local time today, and analysts have rarely been as divided as to the outcome, says Nordea Markets in its morning note.

“Norges Bank’s interest rate decision today is awaited with great excitement. Rarely do analysts’ expectations vary so much as they do now. Out of 17 analysts polled by Bloomberg, five analysts expect an unchanged policy rate, while ten look for a 25 bp cut and two for a 50 bp cut. We belong to the last group expecting a cut of 50 bp to 1.75%,” said Nordea Markets.

It cites several reasons for its view. Firstly money market spreads are higher than envisaged by Norges Bank. Secondly, contrary to previous expectations by the central bank that the Greek contagion could be held, the crisis in the eurozone has deepened. Thirdly, interest rate expectations in other countries have weakened. And lastly, Norwegian economic data overall has been weaker than previously expected by the central bank.

Any rate cut is likely to have an impact on short term euro/NOK rates, sending the Norwegian currency down. However, if the cut is less than the 50 basis points expected by Nordea then the currency may hold up nonetheless. If rates are left unchanged, this is likely to strengthen the currency further, Nordea states.


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