Norges Bank likely to keep sight deposit rate unchanged at 0.50 pct, says Danske Bank

Norges Bank (NB) is expected to keep the sight deposit rate unchanged at 0.50 percent at Thursday's meeting. While developments since September have been roughly as expected, the combination of a weaker NOK and higher oil prices clearly calls for an upward adjustment of the rate path, signalling a more than 50 percent probability of a rate hike in 2018, Danske Bank reported.

However, it is hard to understand how Norges Bank can avoid a significant upward adjustment to the rate path at this junction. Actually, a pure technical approach indicates a rate path that implies a rate hike in March 2018 and another hike before the end of next year.

"An upward revision of NB's interest rate path should trigger a steeper 2019 FRA-curve. Short-end ASW-spreads may widen over New Year," the report said.

Meanwhile, the central bank is again expected to lean on the ‘financial imbalances and uncertainty’ factor introduced to avoid sudden shifts in the expected rate setting. This leaves Norges Bank a lot of room to manoeuvre, which in turn makes it difficult to make an accurate estimate.