Central Banks Take Major Steps To Fight Crisis‏

In the press conference following the latest ECB meeting, Mario Draghi opened the door for a refi rate cut. We now expect this to happen, most likely at the next meeting in May.

Since the previous forecast update, rates have declined. This development has been caused by the recent, somewhat, softer U.S. growth data, speculation of further ECB easing and the uncertainty related to the Cyprus bank rescue.

Furthermore, the BoJ announcement that it would aggressively purchase long-term bonds has increased demand for global fixed income and will keep rates at current low levels for the near future.

International rates
Our forecasts have been adjusted slightly lower to reflect the lower current level, but we continue to expect higher rates and steeper curves than the forward market on a six to twelve month horizon.

In EUR yields we have revised down slightly the forecast for all tenors and horizons. However, we still expect rates to move gradually higher as the global growth recovery eventually will gain traction in euroland.

In the U.S. we continue to believe in a strengthening recovery and an intensifying discussion at the FOMC about tapering off the QE purchases over the course of the summer will be able to sustain the moderate upward trend in U.S. rates.

Our three-month forecasts are close to the market, while our 12-month forecasts are materially higher. The case for further curve steepening thus remains very strong in the coming quarters. The steepening move is expected to be led primarily by higher long-end U.S. rates.

Scandi Rates
In Denmark, we expect Nationalbanken to mirror the possible ECB refi cut by lowering the repo rate 25bp. This will put the repo rate to 0.05%. During the year we still expect continuing normalisation in Danish policy rates and we factor in a total of two independent Danish rate hikes of 10bp each on a 6-12 month horizon.

In Sweden, we think that that the Riksbank rate cut in December 2012 was the last in this cycle. We expect the next move to be upwards and we have a rate hike on a 12 month horizon.

Norges Bank's stated policy is to keep rates unchanged at 1.5% until the spring of 2014, at which point it will hike rates if the economy develops as expected. Consequently, we maintain our call for a rate hike on a 12M horizon. However, with Norges Bank signalling some 40% probability of a rate cut in the summer of 2013, we acknowledge the case for a rate cut in Norway, although this is not our baseline scenario.

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