NORGES BANK: Early Consensus In Favour Of A Cut Next Week; We Aren't So Sure

Based on the analyst previews we have seen so far, consensus still leans in favour of a 25bp Norges Bank rate cut next Thursday. We think it is a very close call, but currently lean against consensus in favour of a hold. As noted in our commentary through the week, inflation was a little stronger-than-expected in August, and the Q3 Regional Network Survey (alongside the Q2 GDP report) does not portray a mainland economy that is in desperate need of further easing. Additionally, Governor Wolden Bache has guided that the June MPR rate path was consistent with “one or two” more cuts this year, keeping the door open to a September hold.

• If rates are held on Thursday, we expect soft guidance for a 25bp cut in December. On the other hand, if a cut is delivered, the likelihood of a subsequent cut in December will have been significantly dampened.
• While the rate decision is uncertain, analysts agree that the September MPR rate path will be revised higher relative to June.
• Although market pricing still tilts in favour of a cut, positioning through the week has clearly been in a hawkish direction. 2-year NOK swap rates are up 18bps from Tuesday’s 3.78% low, and are 12bps above last Friday’s 3.84% close.
• Danske Bank acknowledge the risk of a rate hold next week, but “think markets are overestimating the probability”. Specifically, they believe “markets are underappreciating the probability of not only a cut on Thursday but also a firm continued easing bias”. As such, they have recommended to receive the Dec25 NOK FRA contract at 414bps, setting a soft target of 400bps and a hard stop-loss of 421bps.
• See below for a selection of initial analyst comments on the September rate decision, updated rate path and outlook: