Justifications for the Norges Bank to ease in June

The Norges Bank finally delivered the summer rate cut.

From a low of 3.2% in May last year, the unemployment rate has accelerated to 4.2% according to the latest LFS survey. At the same time, the Norges Bank has had to revise up their unemployment rate forecasts to 4.25% for 2015 and 2016.

The accompanying Monetary Policy Report was mildly dovish, balancing weaker output from its network report and higher unemployment by oil/gas investments that weren't as bearish as previously thought. 

"All in all, there were enough justifications for the Norges Bank to ease in June", says RBC capital markets. 

However, the central bank hung the possibility of further easing, noting 'the key policy rate may be reduced further in the course of autumn'. Governor Olsen further commented that the probability of such a cut was 'between 50-70%'. Given the tilt to an easier stance, this should keep NOK appreciation capped over the 1-3 month horizon.