The Norges Bank is expected to lower its interest rate on Thursday by 25bp. It is also likely to adjust the interest rate path down by 7-8 bp by late 2016 so it can give a slightly above 50% possibility of a further cut during 2016. During its December meeting, the central bank had hinted at an approximately 60% probability of a rate cut in March.
Since then, credit and money market premiums have increased, global forward rates have declined and oil investment estimates have declined more. 2015 growth has also been downwardly revised, indicating a lager output gap going into 2016. Hence, the probability of rate cut has increased to 80-90% and the bank is expected to lower rates effective this week.
A major question is that whether the Norges Bank will provide with a hint regarding its next move, particularly whether it will comment about the probability of zero or negative interest rates. It will make sense if the central bank gives itself enough room to move as possible, making it unlikely to rule them either in or out.
Separately, the NAV will release the unemployment data for March on Friday. The unemployment rate is expected to remain same at 3.3%, while the number of unemployed people is likely to have increased by 1000. The increase is mainly because of the February figures being very low due to winter break throughout most of the country. The data will show that unemployment is climbing less rapidly that it was increasing six to nine months ago.
