NOK: Weak data merit a cut by the Norges Bank

The Norges Bank is expected to cut its deposit rate by 25bp at its 18 June meeting (consensus: 1.00%, market pricing: 1.05%), acknowledging the material deterioration in the growth outlook since its May meeting. 

Indeed, despite relatively resilient Q1 GDP data, forward-looking growth indicators, including Manufacturing PMI and the Bank's Regional Network Report on potential growth have materially weakened, raising downside risks to the near-term growth outlook. 

Barclays notes:

• Beyond the June meeting, we think the Norges Bank will be rather reluctant to ease policy further, given growing financial stability concerns and as such expect any currency weakness to be somewhat contained. 
  
  
• However, given our expectations of "lower-for-longer" and more volatile oil prices, we see scope for a move higher in NOK implied vol and recommend positioning accordingly to express this view.