NOK: A less reactive Norges Bank - Nomura

Norges Bank kept rates unchanged, but raised the policy rate projection and this positivity, despite downside risks, suggests the Bank remains uncomfortable with deposit rates as low as they are, according to analysts at Nomura.

Key Quotes

“A more positive stance than we were expecting

We were expecting the Bank to take a more cautious stance given the slowing housing market, weak inflation and slowdown in growth expectations. However, despite these risks, the Bank took a more optimistic tone, raising the deposit rate projections to imply hikes sooner than previously forecast.

• Growth continued to accelerate in line with expectations, and Norges Bank brought forward its projections for the output gap closing. 
• On inflation, Norges Bank acknowledged recent weakness, but remained confident that capacity utilisation was increasing, and that this should drive inflationary pressures. Inflation forecasts were modestly raised.
• On the housing market, Norges Bank said that slowing residential investment posed a downside risk to the outlook, but the base case was a ‘soft landing’. 

The positivity, despite some signs of risks to the outlook, suggests Norges Bank remains uncomfortable with policy rates as low as they are, even though house price growth has started to slow. Furthermore, compared with other central banks, there is a high level of confidence in the traditional output gap/inflation relationships. 

Governor Olsen said rates will most likely be unchanged into 2019 (in line with projections), but the risks of proactive tightening have increased in our view.”