- Interest rate cuts in June is far from 100 percent sure – HegnarOnline

Norges Bank kept on today’s monetary policy meeting key interest rate unchanged at 1.25 percent.

Tensions were high in advance and analyst ranks were split roughly down the middle on the view the central bank would cut or not.

Nordea Markets was among those who held a button on rate cuts.

– While household demand is constantly good, Norges Bank more emphasis on the risk of financial imbalances. House prices have continued to increase, and growth in household debt has been stronger than expected by the central bank in March report, writes senior economist Joakim Bernhardsen in an update.

– According to Governor Olsen at the press conference, the risk of financial imbalances crucial for monetary policy decision, he continues.

Handelsbanken Knut Anton Mork is our guest today in Economy news with Trygve OBI on HegnarTV. Transmission starts as usual 3:30 p.m..

Doubt June cuts
Norges Bank signaled following the meeting 100 percent probability of a rate cuts in either May or June. Handelsbanken sore now doubt about it at all is a June cut.

Bernhardsen in Nordea is not so sure anymore, although the governor confirms that there “are still prospects that key interest rates will be lowered in June “.

– We believe the interest rate cut in June, but uncertainty has increased since Norges Bank show greater concern for house prices and household debt. The markets will likely price in some probability of unchanged interest also in June, and thus there is further downside potential in EURNOK, also from current levels at 8.32, believe senior economist.

Bernhardsen and Nordea eyes thus a further strengthening of the krone against the euro.

Read also: – Norges Bank will trigger a dollar rally

At the interest rates on so-called FRA’s (forward rate agreements) rose 8.6 basis points in the wake of today’s meeting at Norges Bank indicate that the market has become more uncertain at a June cut.

Far from 100 percent
Chief Economist Shakeb Syed in Sparebank 1 Markets have seen what the FRA market is pricing in interest rate change from Norway Bank.

In conclusion, the market is not pricing in the large probability of a rate cut in June,

– An uncertain assumption here is the credit spread to be loaded (that is to work from FRA to the policy rate). Here we have added 20 basis points (bp) for the first contract (3 months) and 25 bp for the remainder of the contracts, writes Syed.

– Given this, the graph (see below) that the FRA market is not pricing in large likelihood of interest rate cuts on June 18, more concrete is priced in 12 percent. We raise the credit to 25bp also for the June contract, rising probability of 32 percent, he said.

Both are according to chief economist significantly lower than the 100 percent that is built in Norges Bank’s interest rate path, and as Governor Øystein Olsen supported at today’s press conference.

– This is an argument that first contract is too high and that it may fall 17 to 22 bp. Whether it falls by almost 17 or 22bp depends therefore on the credit spread one chooses to believe, writes Syed.

Source: Sparebank 1 Markets.