Norges Bank likely to raise sight deposit rate by 25 bps to 0.75 pct, adjust rate path upwards: Danske Bank

The Norges Bank is expected to raise the sight deposit rate by 25 basis points to 0.75 percent at its monetary policy meeting scheduled to be held on September 20 by 08:00GMT, according to the latest research report from Danske Bank. In addition, the revision of the rate path in the corresponding monetary policy report is likely to be positive, as almost all factors affecting the rate path should be supportive.

However, core inflation has been higher, oil prices have been slightly higher and the money market spread has been a bit lower than expected. Domestic growth has been roughly in line with expectations, but the oil investment survey clearly points to an upside risk for the oil investment forecast, and hence, for the GDP forecast, for 2019. The main positive contribution is from a weaker currency.

However, the central bank has added a factor called ‘judgement’ to the factors affecting the rate path. In short, this includes an assessment of financial stability, including housing market developments, and uncertainty over the policy impact with low rates, the report added.

The latter allows Norges Bank to ‘smooth’ the rate path in order to avoid abrupt shifts in monetary policy, an option that needs to be activated at this time to avoid sending strong hawkish signals.

"Based on these assessments, we expect the new rate path will suggest a somewhat higher than 50 percent probability OF another rate hike in December, 2.5 hikes in 2019, 2 hikes in 2020 and 1.5 hike in 2021," the report further commented.

Meanwhile, as uncertainties tied to the overall outlook for next year remain high, the most interesting part may be the rhetoric regarding the possibility of another hike in December.