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FXStreet (Edinburgh) - Analyst at Danske Bank Kristoffer Lomholt believes the Norges Bank could cut its benchmark rate at the June meeting.
Key Quotes
“While we were among the very few who thought risks at the Norges Bank March meeting were skewed towards no cut, we too were surprised by the decision”.
“While interest rate derivatives markets currently price in an implied probability of around 20% of two rate cuts in Q2, we think Norges Bank will only cut rates once (namely in June)”.
“In addition, market pricing of more than two full 25bp rate cuts in H2 is, in our view, too dovish as we still do not expect the Norwegian economy to fall off a cliff despite the weaker growth outlook”.
“Consequently, we expect Norges Bank to cut rates only once by 25bp; we believe at the meeting in June”.
“As oil prices gradually recover, we think this will widen interest rates differentials, which would be a supportive factor for the NOK”.
“In the very short term, we expect the cross to rebound on more volatility in the oil market and more aggressive pricing of Norges Bank ahead of the May meeting”.