As expected, Norges Bank (NB) this morning left the sight deposit rate unchanged at 0.50%. The Board maintained the 'neutral bias' introduced in September, stating that, 'the Executive Board's current assessment of the outlook suggests the key policy rate will most likely remain at today's level in the period ahead'.
The revised rate path published in the Monetary Policy Report still suggests a 40% probability of a later rate cut, which was exactly in line with our expectations. In our view, the rate cut probability embedded in the rate should be interpreted as an insurance premium against an unwarranted NOK appreciation and/or marked weakening of data, as the new contributing factor indicates that NB does not want to signal imminent further monetary stimulus.
Given our economic forecasts and NB's 'neutral' bias today, we expect NB to leave the sight deposit rate unchanged throughout 2017.
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