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NOK: Preview of Norges Bank meeting

Mon, Mar 23 2009, 17:39 GMT
by Arne Lohmann Rasmussen

Danske Bank A/S

• Norges Bank is expected to slash policy rates another 50bp to 2.0% at the Monetary Policy Meeting on 25 March.


• We also expect the central bank to revise its interest rate path slightly lower, indicating a final 25bp rate cut in Q2, and risk an additional insurance rate cut. Hence, Norges Bank is expected to signal that rates will bottom out at 1.5 - 1.75%.

• The NOK has performed strongly since the beginning of March. But we still think the currency offers some value on a 3M horizon.


Norges Bank to cut rates by 50bp


The NOK has performed strongly since the beginning of March. EUR/NOK has fallen from 9.06 to 8.60 and we have now reached our 3M target. Hence, the question is whether the NOK offers more value in the short-term. We think so and expect the monetary policy meeting on Wednesday to lend further support to the NOK.


We expect to see a test of 8.40 over the three months. We will take a closer look at our EUR/NOK forecasts later this week.


NOK fundamentals are strong


But let's take a look at the fundamental NOK picture. The NOK stands out compared to other currencies on a number of accounts.


- The Norwegian internal and external balances are very healthy. Despite the drop in the oil price, the budget surplus including the pension fund is forecast at NOK 270bn or 15% of mainland-GDP in 2009 according to the newest budget update from the government. We think there is a growing focus on balances in evaluating currencies. And Norway is certainly in a league of its own.


- The economy is doing relative well compared to Euroland and the US. We expect mainland GDP to contract by just 0.5% in 2009 compared to our expectation of -2.7% in Euroland and the US.

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Published on  Mon, Mar 23 2009, 17:42 GMT




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• NOK: Preview of Norges Bank meeting
  Published On Mon, Mar 23 2009, 17:39 GMT
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