We now expect Norges Bank to cut rates on 17 March.
At the December MPC-meeting, the Board signalled that rates were more likely to be cut in March than kept on hold. As we expected domestic key figures to improve, we expected NB to stay on hold in March.
Since the December meeting, however, most of the factors affecting the rate decision and the rate path have surprised to the downside.
The oil price has dropped further, and is currently USD6-7/bl lower than expected in MPR 4/15.
Global rates have dropped, and are currently roughly 15-20bp lower at end-2016 than previously assumed.
Global risk appetite has plummeted, increasing downside risks to global growth and risk premiums.
The latter has also caused a significant rise in credit spreads, even in Norway, which in turn is an argument for lower policy rates, and could indeed increase downside risks if credit standards should tighten further.
In addition, the domestic key figures, including the CPI, have admittedly been more mixed than we had expected, even though full visibility is still required for the GDP figures, oil investments and the regional survey - all due later this month or in early March. More surprisingly given the drop in the oil price, the import-weighted NOK is roughly in line with December expectations.
As a result, we expect Norges Bank to cut rates by 25bp at the meeting on 17 March. As our view on the domestic economy remains unchanged, we expect that to be the last cut in this cycle.
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