– Key policy rate unchanged at 1.5%
– Norges Bank waits for more data, sum-up so far on the weak side
– We maintain our expectation of a cut of 25% bp in June
Message from Norges Bank exactly as expected, sum-up so far on the weak side
As expected, Norges Bank kept the key policy rate unchanged at 1.5% in May, and the reasons given were also exactly as we expected. Norges Bank points to the fact that inflation so far has been lower than expected, but we only have one inflation number since March. Norges Bank also acknowledges that wage growth seems to be lower than expected this year. At the same time growth prospects internationally is somewhat weaker than in March. Norges Bank also gives attention to the update from Norges Bank’s regional network in April, which indicates that output growth has been lower than expected since January. Furthermore, interest rates and expectations for key policy rates internationally have fallen more than expected. On the upside Norges Bank points to the somewhat weaker than expected krone and strong monthly data for private consumption.
Norges Bank waits for more data
Norges Bank seldom acts on an interest rate meeting that is not backed up by a Monetary Policy Report, unless large shocks have hit the economy. And this was not the case this time. Norges Bank wants to wait for more data, as we predicted. Before the June meeting we get two more monthly inflation numbers and also GDP for Q1 in addition to more monthly updates from the labour market, another report from Norges Bank’s regional network as well as daily input from the exchange rate and interest rate markets.
We maintain our expectation of an interest rate cut in June
Eventhough Norges Bank today said that an overall assessment of the outlook and the balance of risks suggests that the key policy rate should be left unchanged at this meeting, the sum-up they present of the different factors is clearly on the weak side and point in the direction of an interest rate cut. We expect to se more weak inflation data also going forward, and maintain our expectation of an interest rate cut of 25 basis points in June.
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