Norges Bank on hold for now

The Norges Bank is likely to keep its deposit rate unchanged at 0.75% for three key reasons. First, since the September policy meeting, Norwegian economic data have broadly been better than expected, illustrated by the uptick in our DSI. 

Second, the sharp drop in energy prices has shown some signs of stability recently, alleviating some of the immediate pressure on the Norges Bank. Third, the NOK has depreciated c.1.5% in REER terms and continues to act as a meaningful stabilizer. 

"The EUR/NOK is likely to depreciate somewhat, but a material NOK rally might not be much anticipated, given little in terms of market pricing. Indeed, EUR/NOK is trading close to its short-term fair value, according to the FFV model.

An additional 25bp rate cut is likely in the next 3-6 months should the growth outlook continue to deteriorate, as the Bank projects. On this note, Manufacturing PMI data  and Industrial Production will be followed closely.