Norges Bank surprised even the most dovish expectations today with substantial revisions of the rate path. The analyses suggest that the key policy rate will be kept low longer than previously anticipated. “The first increase in the key policy rate is now projected to take place in spring 2014,” says Governor Øystein Olsen. Considering activity in the Norwegian economy Norges Bank is clearly taking part in the global currency war to weaken its currency. Given how dovish this statement was price-action after the decision has been quite modest in NOK. Hence in order to get more momentum we need to see the fast-money accounts starting to sell NOK/SEK additionally. Although that is quite likely, we doubt EUR/NOK has much staying power above 7.50, but of course it is way too early to sell EUR/NOK already now as the market has to price the new rate path. Fundamentally Norway is still very strong and the rate decision adds to the ongoing asset price inflation which has to be curbed one way or the other. As a direct consequence of today’s message we revise our forecasts in EUR/NOK by 10-15 figures across the forecast periods, and revise the action level to sell EUR/NOK at 7.60/.65 (previously 7.50).
SEB