Norges Bank likely to keep key interest rate on hold in June

Norwegian central bank, Norges Bank, is set to meet next week for its interest rate decision. According to a Nordea Bank research report, the central bank is expected to keep the key interest rate on hold. While the focus will be on the new interest rate path, the central bank will underline that uncertainty is rife.

“We do not expect a significant change in view; the rate path will remain flat”, said Nordea Bank.

At present, monetary policy is quite accommodative, which will support a faster recovery in activity ahead.

The shape of the rate path will be closely connected to Norges Bank’s economic outlook. The central bank is expected to emphasise that uncertainty surrounding economic developments ahead is still unusually high. This warrants a patient approach.

“We believe Norges Bank will present a rate path similar to the one from May, which is consistent with rates on hold in the period ahead. Though we see some potential for a higher rate path towards the end of the forecast horizon as the outlook does not seem as bleak as in May”, stated Nordea Bank.

Market reactions are expected to be subdued. For large movements to happen, the central bank needs to surprise markets with a solid upward adjustment of the rate path, which appears quite unlikely.

“Zero is the effective lower bound in Norway. Thus, we prefer to pay the short-end of the Norwegian rates curves as rates cannot get much lower than the current expectations”, added Nordea Bank.