Norges Bank keeps key policy rate unchanged at 0.5 pct

As it was widely anticipated, the Norwegian central bank, Norges Bank, kept its rates unchanged at 0.5 percent during its meeting today. However, the central bank lifted the rate path in the front and back in spite of disappointing figures seen in the past months. This shows that the Norges Bank is worried about increasing house prices and financial stability and strengthens the view of reluctance to lower rates, noted Nordea Bank in a research report.

The bottom of the rate path is 40bp, 10bp lower than today’s rate; however, the downward trajectory has been pushed out in time by three months. This clearly puts in a 20 percent possibility for a March cut and a cumulative 40 percent possibility for a cut by June.  But important news is that the central bank is raising the rate path in spite of the news flow strictly speaking being on the downside, said Nordea Bank.

This is an explicit sign that the central bank is quite worried about the developments in the housing market. This leaves the easing bias in the path with very little credibility. The Norwegian central bank is quite further away from lowering rates than what the path implies and the market is correct to greatly see straight through it, according to Nordea Bank.

“Given the weakeing easing bias today's news should be positive for NOK. The interest rate market has ignored the easing bias for a while and the reaction there should be more muted”, added Nordea Bank.