Norges Bank to cut rate by 50bps

In line with last week's economic outlook survey, released by Statistics Norway, the decline in oil prices to weigh heavily on the investment sector of the economy, pushing GDP significantly lower in 2015. 

With inflation expectations, as measured by CPI-ATE, firmly anchored at 2.5% over the medium term, the Norges Bank will be willing to allow a short-term overshoot of its inflation target through further easing and a weaker NOK, in an attempt to stem further downside pressures to economic activity from lower oil prices. 

Barclays notes its observations as follows:

• We expect the Norges Bank to ease policy substantially at its 19 March meeting, cutting its deposit rate by 50bp to 0.75% (consensus: 25bp cut, market pricing: approximately 18bp cut). 
  
  
• Brent oil future prices are now considerably lower compared with the Norges Bank's previous monetary policy assessment in early December, implying a more aggressive future pass-through to economic activity, compared with what was then estimated. 
  
  
• As a result, we expect monetary policy to be pro-active rather than re-active. Even under a 25bp cut scenario, we expect the Norges Bank to forecast further weakness and retain a policy easing bias.