Norges Bank cut rates to 1.25% and says it is a 50% probality of a cut again in March. Unchanged rates was expected
Contrary to expectations Norges Bank cut its key rate to 1,25%. It forecasts key rates at 1,13% as bottom in Q2 2015 which means it says its is a 50% probability for a cut again in March. Key rates are then on hold until late 2016. Thereafter rates are hiked slowly to end at 1,64% in Q4 2017. A strong downward revision of its forecast for growth and capacity utilization due to the lower oil prices is the reason for the stronger than expected downward revision of the rate forecast. Add to this that it lowered its forecast for growth in costs (wages etc.) but this downward revision was rather moderate and in line with forecast. As expected weaker NOK pulled the rate path strongly upwards and prevented a much lower path.
Its worth mentioning that Norges Bank forecast a significant strengthening of NOK. NOK is currently 4,5% weaker than Norges Bank forecasts for Q2 2015. That means that Norges Bank must become significant more pessimistic on growth or inflation pressure decrease for it to lower rates again in March, given the current NOK. There is nothing in today’s signals that Norges Bank has changed its view on how the exchange rate influences rates.
Nordea