NORGES BANK: HOW MUCH LOWER RATE PATH? While markets and economists forecasts unchanged rates at 1.50% today, expectations on the new rate path are split. The weakness seen in the domestic economy in Q4 will partly affect the rate path while financial factors should be more neutral. We expect the rate path to be lowered by some 25bps, domestic investors expect only marginal downward revisions while others forecast ~50bps lower path. There is a large uncertainty related to upcoming regulations on how much and when the raise in bank’s lending margins will impact the path. However, we expect the rate path to continue signaling a rate hike before year-end => could be viewed as slightly hawkish by markets which currently discounts unchanged rates until mid-2014. Overall, we anticipate small market moves. NOK has weakened recently mainly as market has closed it’s previously long NOK/SEK positions. The import-weighted NOK (I44) is now trading spot on Norges Bank projections and should thus not trigger any explicit bearish warnings beyond the usual comment that it has room to maneuver in interest rates. More here.
HOLD ON TO SHORT NZD/NOK. Yesterday, the RBNZ held rates unchanged. Although the statement wasn’t that bearish, comments focusing on the overvalued currency weighed on the NZD as market were caught long. Persistent kiwi strength would open up for rate cuts in H2 2013. We continue favoring short NZD/NOK with the external metrics being very bearish, targeting 4.35.
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