As expected, Norges Bank (NB) this morning left the sight deposit rate unchanged at 0.50%. The Board maintained the 'neutral bias' introduced back in September 2016, and stated that 'the Executive Board's current assessment of the outlook and the balance of risks suggests that the key policy rate will remain at today's level in the period ahead'. Also, NB announced that today's decision was 'unanimous', which is part of the new type of information that NB will deliver going forward.
The revised rate path published in the Monetary Policy Report (MPR) removed the rate cut probability entirely, which was in line with our call. Also, the NB maintained a very flat rate path, signalling that no imminent rate hike is forthcoming. We now expect the first hike towards the end of 2018.
FI/Rates. We reiterate our strategy of selling NOK FRA 3M Jun 2018 and buying NOK FRA 3M JUN 2019. Tomorrow at 12:00 CET, the Gjedrem Committee's report is due to be released, which could add to the steepness of the curve if the inflation target is modified to 2.0% (from 2.5%).
FX. EUR/NOK has, as expected, fallen slightly on the announcement, with the downside limited by the flatness of the rate path. Going forward, we emphasise that the global environment remains a headwind for the NOK. Hence, we do not see this as this trigger for a sustained EUR/NOK trend lower. We are strategically NOK-bullish on constructive domestics but remain tactically cautious on global demand and the oil price outlook. Hence, we prefer to position for a lower EUR/NOK via options.
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