Norges Bank holds rates, rate path marginally hawkish

Norges Bank left its monetary policy unchanged at today’s meeting as widely expected. The central bank kept benchmark rate intact at 0.50%. The revised rate path still has a 100% implied probability of a 25bp rate cut in H2 16. We have a 70-100% implied probability of the cut coming at the next meeting in September.

The Norwegian krone spiked after the Norges Bank left its monetary policy unchanged at today’s meeting, sending EUR/NOK to test fresh lows around 9.2975 levels. The pair has since erased some losses to trade around 9.3264 at the time of writing.

Governor Olsen noted that global growth has been moderate and energy prices have ticked higher since March, while uncertainty around the UK referendum kept weighing on financial markets. The Norges Bank sees lower wage growth and NOK strength to weigh on consumer prices in the next periods. Olsen said NOK has been stronger than estimated and he now expects economic growth to remain weak despite a potential pickup in demand following higher oil prices.

"Overall, the rate path was marginally more hawkish than we expected, as we believed NB would keep a small (5-10%) probability of a cut to 0%. Overall, we think today's decision supports our call that NB will cut the sight deposit rate by 25bp to 0.25% in September and that this will mark the final cut in this cycle," said Danske Bank in a report.