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Board to Stand Pat, No New Rate Path Signals

With no new rate path projections or policy report at this week's decision, markets expect no new signals from the bank board, leaving market focus on June's policy update.

March's rate path projections were slightly more hawkish than expected, with the first rate hike now flagged for December (brought forward by around a quarter from the December MPR) and there is now a possibility of a rate hike as early as September, effectively ruling out May's update as a live meeting.

Figure 1: March 2021 rate path steepened relative to the December MPR

Source: MNI/Norges Bank

The Bank's positivity surrounding the domestic vaccine rollout was evident in the assumptions made at the March policy report, in which the bank noted that further support for economic growth and inflation will stem from a faster vaccine roll-out, stronger fiscal stimulus in the US as well as higher commodity prices, freight rates and increased capacity utilization.

The picture has changed somewhat since then, with the Norwegian health authority's decision on whether to recommend the use of the AstraZeneca/Oxford vaccine still pending. This decision is expected by the 10th May, ahead of which the Board will have difficulty assessing re-opening and the impacts on the economy.

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MNINBPrevMay21.pdf