NORGES BANK: To Start Issuing CB Certificates To Mop Up Excess Liquidity
On Friday evening, Norges Bank announced the introduction of Central bank certificates as a new instrument to mop up excess liquidity. Following a consultation with relevant participants, the bank aims to start issuing certificates during 2026. Existing liquidity operations under the quota system (F-loans, F-deposits) will remain in place. See the consultation letter (in Norwegian) here.
- A reminder that Norges Bank aims to maintain total liquidity (i.e. central bank reserves) between NOK30-4bln. Structural liquidity is much higher than this level, so Norges Bank provides F-deposits to drain excess liquidity and ensure the target range is met.
- Structural liquidity in the Norwegian banking system has increased in recent years because “government debt borrowing over time has been lower than transferred dividends from Norges Bank and the government's actual borrowing requirements”. As of this year, the Government also stopped sterilising increases in Norges Bank FX reserves with issuance (meaning Norges Bank now purchases NOK FX in daily operations to prevent unwanted rises in central bank reserves).
- Norges Bank writes that “The effects of high structural liquidity have been evident in the Norwegian money market in recent years...Money market spreads have reached very low levels as structural liquidity has increased…At the same time, turnover in the interbank market has fallen….Both of these trends indicate that banks have less need to insure themselves against liquidity risk and that they are redistributing liquidity among themselves in the money market to a lesser extent”.
- “Central bank certificates will be used to draw down central bank reserves over longer periods. The certificates will be made available for purchase by both banks and other non-bank investors (the public)“.
Figure 1: NOK Scarcity Premium and Structural Liquidity Over Time (Source: Norges Bank)
Figure 1: Norges Bank Liquidity Forecasts (Source: Norges Bank)
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AUSSIE 3-YEAR TECHS: (U5) Bounces Further Off Support
- RES 3: 97.190 - High May 5 2023
- RES 2: 96.932 - 76.4% of Mar-Nov ‘23 bear leg
- RES 1: 96.860 - High Apr 07
- PRICE: 96.550 @ 15:36 BST Sep 12
- SUP 1: 96.430/95.900 - Low Sep 3 / Low Jan 14
- SUP 2: 95.760 - Low 14 Nov ‘24
- SUP 3: 95.480 - Low Jan 11 2023 and a major support
Aussie 3-yr futures are trading off recent lows. A resumption of gains from here would further narrow the gap with resistance at 96.730, the Sep 17 ‘24 high, leaving 96.860 as the next key level. Any continuation lower would instead strengthen a bearish threat. This would refocus attention on 95.760, the 14 Nov ‘24 low. Conversely, a reversal higher would open 96.860, the Apr 7 high.
FED: MNI Fed Preview-September 2025: A Reluctant Return To Easing
We've published our preview of the upcoming FOMC meeting - Download Full Report Here
- The Federal Reserve is set to resume its easing cycle at the September 16-17 meeting with a 25bp cut to the funds rate range to 4.00-4.25%.
- The decision to cut after a 5-meeting pause was well-telegraphed by Chair Powell, whose Jackson Hole speech described a “shifting balance of risks” toward a weaker labor market that “may warrant adjusting our policy stance”.
- The updated quarterly projections aren’t likely to bring many changes to the macroeconomic variables, but as usual the signal sent from the Fed rate “Dot Plot” will garner attention. A Committee split between expecting one or two further cuts this year is likely, keeping each of the remaining meetings of 2025 “live”.
- The Statement will downgrade the description of the labor market to reflect a rise in the unemployment rate and poor payrolls growth, and is likely to include at least one dissent to the rate decision.
- But with a Committee that is fairly divided on the way forward, Powell will be noncommittal on future action, reiterating that policy is not on a preset course, and upcoming decisions will be data-dependent.
- A key undercurrent is an increasingly activist approach to Fed personnel management from the White House, which leaves the composition of the FOMC uncertain not just over the medium-term but also at this meeting.
MNI’s separate preview of sell-side analyst summaries to follow on Monday Sep 15
RATINGS: Fitch: France Cut To A+ From AA, Portugal Up To A From A-
Fitch has downgraded France's sovereign rating to A+ (with stable outlook) from AA-. Release here.
- Among other factors in the decision, Fitch cites "High and Rising Debt Ratio", "Political Fragmentation Hinders Consolidation", "Weak Fiscal Record", "High 2025 Deficit", "Uncertain Fiscal Consolidation Path", and "Fiscal Rigidities".
- In "Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade", Fitch cites "Public Finances: A sustained increase in government debt/GDP over the medium term, due to failure to implement fiscal consolidation measures and/or a persistent increase in financing costs" and "Macro: Materially lower economic growth prospects and weakened competitiveness." Conversely, potentially leading to positive ratings action would be "Public Finances: Confidence that government debt/GDP will be put on a downward trajectory over the medium term, for example, due to fiscal consolidation and/or stronger economic growth".
- Fitch also raised Portugal to A (stable outlook) from A-, while elsewhere, S&P raised Spain to A+ (stable outlook) from A.
- As MNI wrote earlier, we expected France to be downgraded to A+ and Portugal to be upgraded to A.
