Nok appreciaton will not be tollerated – Deutsche

By FXStreet FXStreet (Guatemala) – Analysts at Deutsche Bank explained that since October 2014, the Norges bank has cut the policy rate by 75 basis points, with the last easing in September of this year accompanied by a very aggressive revision to the repo rate forecast, implying an additional 24bp of easing and shifting out expectations of policy normalization from 2016 to 2018.

Key Quotes:

“The rates market is currently pricing more easing than that, with one 25bp cut fully discounted by March next year (versus 6bp in the Norges forecast) and a 50% probability of another by September (versus Norges forecast of 16bp total cuts). For the Norges to over-deliver versus current market pricing, Norges would have to cut the repo rate twice by autumn next year.

This is possible, but will depend on the evolution of both domestic data and the exchange rate. With financial conditions already relatively easy in Norway, the main channel through which cuts in the repo rate influence the economy is via the exchange rate. On that front, krone weakness has outstripped the Norges Bank’s own forecasts, with the broad krone TWI around 2% weaker than the September forecast. In this sense, the Norges Bank may be pleased with …read more

Source:: FX Street