Norges Bank to keep interest rate unchanged in May, might cut in September

The Norwegian central bank will be publishing its interest rate decision tomorrow. It is not expected to give a new forecast for interest rate; however, it will compare the projections made in March to the recent developments. The Norges Bank is likely to keep its rates on hold tomorrow, noted Nordea Bank in a research note.

It had lowered the rates in March and mentioned that it would be “proceeding with greater caution in interest rate setting” as the key policy rate nears the “lower bound”. The rate path provided a near zero possibility of lowering in May and below 50% chance for a reduction in June. However, it gave a 100% possibility for a cut in September.

The market anticipates almost 50% chance for a rate cut in September. Furthermore, the market does not appear to be totally certain that the central bank will lower rates at all in 2016. Hence it needs to be seen if the Norges Bank will provide a clear indication of it continuing with its March view. If the central bank does give the signal, forward rates might slightly decline and the NOK might depreciate.

Since the March meeting, the economy news has been mixed. According to the central bank’s second quarter business survey, growth is still near zero whereas retail sales have been soft. Meanwhile, the country’s registered joblessness has been below projections. Inflation has stayed near to expectations. Overall, the Norges Bank is likely to continue with its March’s view that indicates a rate cut in the month of September.