• Norges Bank is expected to leave the policy rate unchanged at 1.50% and signal unchanged rates for the coming period.
  • This is an interim meeting, with no monetary policy report or press conference, and at which NB has tended to provide very little news in recent years.
  • We expect no market reaction upon announcement.

What to expect : We expect no new signals from Norges Bank (NB) at its monetary policy meeting on 23 January. Hence, we expect NB to leave the policy rate at 1.50% and reiterate that rates most likely will remain unchanged in the period ahead. Note that this is an interim meeting with no monetary policy report, rate path or press conference. Indeed in recent years, NB has tended to give very little new information at these interim meetings which fall only one month after the last monetary policy report.

At the meeting in December, NB stated that 'the policy rate will most likely remain at this level in the coming period'. Meanwhile, the rate path implicitly suggested a 40% probability of a 2020 hike, highlighting a modest bias towards further tightening.

Since then, key figures have been a bit disappointing. Mainland GDP increased by 0.3% in the three-month period from September to November. This is the lowest rate for more than three years and confirms that the economy entered a clear slowdown phase towards the end of 2019. However, this should be in line with the signals from the Regional Network Survey published in December, and is only marginally lower than the NB forecast from December.

Also, core inflation fell to 1.8% y/y in December, against the expected 1.9% in the December MPR. We still believe that the risk of a stronger disinflationary trend is limited. Although growth has slowed down, capacity utilisation is still high, and wage growth will remain in the 3.2-3.4% region going forward. This means that domestic inflation (weight of 2/3) is most likely to stay up. At the same time, we expect the NOK depreciation through the second half of last year to gradually turn into higher imported inflation (1/3) in 2020 (Chart 3). Hence, we expect NB to put less emphasis on the marginally lower inflation print as long as the medium-term inflation drivers remain positive.

On the other hand, the import-weighted NOK has appreciated and is currently around 1% stronger than expected in the MPR in December. If this continues, it could affect the rate settings later in 2020, but neither the level nor the pace of the appreciation should cause any major concerns at this juncture.

If we are right in our broad consensus call, it should have virtually no market impact upon announcement. As Table 1 on page 2 shows the short interim NB meetings have generally failed to trigger substantial market moves since press conferences were removed from the interim meetings in 2017.

Our base case remains a fifth NB rate hike in 2020 (in June), but the probability of this call materialising has arguably fallen in recent weeks. We estimate a true probability of another NB hike as marginally higher than 50% given the recent news flow. In comparison, markets price roughly 2bp and 5bp worth of cuts (accumulative) for end-2020 and end-2021, respectively. Hence we still see value in positioning for higher short-end rates. 

Download the full report

This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD hits two-month lows amid USD strength

EUR/USD has pared its gains that followed upbeat preliminary PMIs for Germany came out above expectations, pointing to a recovery. The USD is advancing amid fears of the coronavirus.


GBP/USD drops below 1.31 amid USD strength, fails to sustain PMI gains

GBP/USD is trading below  1.31 after hitting a fresh high of 1.3172. The UK Manufacturing PMI beat with 49.8 and Services PMI with 52.9. The USD is gaining ground across the board.


Cryptos: Bears take over and draw a bloody moon

Despite appearances, Bitcoin is the asset with the best risk/benefit ratio. The current falls are adjusted to the ranges of the previous rise. Downward momentum expires in the first half of February.

Read more

Gold rebounds above $1560 ahead of US PMI data

The XAU/USD pair dropped to a daily low of $1556.70 during the European trading hours as the easing worries over coronavirus becoming a global epidemic and a broad-based USD strength put the pair under bearish pressure.

Gold News

USD/JPY stuck in range around 109.50 amid China coronavirus concerns

USD/JPY sticks to its range play around the midpoint of the 109 handle amid rising fears of the Chinese coronavirus outbreak globally, upbeat Japanese CPI data and a minor bounce seen in the US dollar across the board. Focus shifts to US PMIs. 


Forex Majors