As expected, Norges Bank (NB) left rates unchanged at 0.75% .
The statement reiterated the September easing bias but was otherwise very balanced with no clear signals that the bank is planning to cut in December.
At the Q&A session , Governor Olsen stated that since September "some factors" support higher rates and "some factors" support lower rates. He concluded that overall the balance of risk was evenly spread out and repeated that NB's next rate path will be sent out in December.
Our expectation . In our base case, we still expect NB to leave the sight deposit rate unchanged in the coming year. We do, however, acknowledge a clear risk of an eventual cut. We think the outcome of the 17 December meeting will be decided by the data flow, especially the oil investment survey (Nov 24) and the Regional Network survey (4 Dec), but the OPEC meeting (4 Dec) and the Q3 GDP figures (17 Nov) will also be important.
Market reaction: since the announcement, short-term rates have risen by about 3bp . We now estimate that markets are pricing in 5bp worth of easing for the December meeting and 29bp cumulative worth of cuts on a 9-14M (the interval where the most easing is priced).
FX . Post the decision, we have seen a relief rally in NOK as some had expected a clear hint of a December cut. In our view, however, this is NOT a game changer, and is not the trigger for NOK appreciation. We maintain our view that EUR/NOK risks remain skewed to the upside in the coming months on seasonality and the potential for more NB easing being priced in ahead of the December meeting. We lift out 1M and 3M EUR/NOK forecasts to 9.40 (from 9.30) but leave our 6M and 12M forecasts unchanged at 9.25 and 8.80, respectively.
Fixed Income . If we see a further repricing of the Norwegian curve after the NB meeting, we would see that as an opportunity to go long NGBs asset swapped or against Germany. We prefer the 8-10Y segment of the NGB curve.
To Read the Entire Report Please Click on the pdf File Below