Norges Bank likely to maintain interest rate at 0.5 pct and to keep strong easing bias

In its upcoming meeting, the Norges Bank is likely to keep its rates on hold at 0.5 percent and is expected to repeat the strong easing bias from its earlier meetings, said Danske Bank in a research report. The rate path from March was quite soft that suggested a 50 percent chance of lowering rate in June and a 100 percent possibility of a cut before the fourth quarter of 2016. There was a 20 percent possibility of an additional reduction to 0 percent.

However, during the March meeting, the Norwegian central bank also highlighted that as the “key policy rate approaches a lower bound, the uncertainty surrounding the effects of monetary policy increases”. This implies that the Norges Bank is quite cautious with setting of interest rate. The central bank is expected to repeat this message on Thursday.

The Norges Bank will find it difficult to avert a lesser dovish tone than March’s in spite of the urge of maintaining an easing bias to underpin a weak NOK.

“We expect the revised rate path to signal a 80-90 percent probability of a September rate cut and a 5-10 percent probability of an additional rate cut to zero. We still expect NB to cut the sight deposit rate in September, marking the final rate cut in this cycle,” noted Danske Bank.