The Norges Bank is expected to cut its deposit rate by 25bp at its 18 June meeting, acknowledging the material deterioration in the growth outlook since its May meeting.
Despite relatively resilient Q1 GDP data, forward looking growth indicators, including Manufacturing PMI and the Bank’s Regional Network Report on potential growth, have materially weakened, raising downside risks to the near-term outlook, says Barclays. This deterioration in economic data is reflected by the sharp drop in the newly created Data Surprise Index (DSI)[1] for Norway and has caused the NOK to depreciate markedly over the past month, making it the second-worst performing currency amongst the G10.
Barclays highlighted three relevant pillars on which the Norges Bank bases its policy currently.
- First, oil prices and their effects on the economy’s growth outlook.
- Second, credit indicators, including credit-to-GDP ratio, in the context of financial stability considerations.
- Finally, inflationary pressures and the extent to which they remain consistent with the Bank’s 2.5% target.
“With spot inflation close to the Bank’s target and medium-term inflation expectations firmly anchored, the policy dilemma still involves weighing the relative importance of downside risks to growth against financial stability considerations. At this juncture, the Norges Bank is expected to take stock of the decline in forward-looking growth indicators and choose to ease policy for the first time since December 2014, consistent with its March forecasts”, says Barclays.
The material has been provided by InstaForex Company – www.instaforex.com