RPT-MNI PREVIEW: Norges Bank Mulls Easing But No Negative Rate

By David Robinson

     LONDON (MNI) - Norges Bank's Monetary Policy and Financial Stability

Committee looks set to continue along a different path to many central banks at

its May meeting, holding off negative interest rates and quantitative easing

while still holding out the possibility of one further rate cut.

     The central bank has already cut the policy rate from 1.5% to 0.25% in

response to the coronavirus crisis. It could opt to nudge the rate lower at this

meeting but Governor Oystein Olsen has warned against going negative and said

that it was natural for fiscal policy to take the strain.

     The following are pointers to the meeting and the accompanying Monetary

Policy Report:

     -When it cut by 75 basis points to 0.25% on March 19, the committee said

that it "does not rule out that the policy rate may be reduced further."

     -It has so far followed the playbook set out by Olsen in a speech in

October on the monetary policy toolkit.

     He stressed that Norway, with its small debt market, consumers and

businesses reliant on banks' floating rate loans and strong public finances, was

different from other countries.

     "It would be natural for fiscal policy to play a greater role ..

Consequently, there is less need to steer monetary policy into uncharted waters

and risk negative side effects," he said.

     Having the central bank bulk buy government debt was risky because "A

further reduction in the number of outstanding bonds would reduce liquidity in a

market that is already small" while a negative interest rate risked squeezing

banks' net interest margins and curtailing lending.

     -The most the committee is likely to do is to cut the policy rate to, say,

0.1% but the benefits of that would be slight, and analysts have divergent views

on whether 0.25% will prove to be the floor.

     -Norges Bank is committed to ensuring that the low official rate is passed

on to consumers and business, announcing a rolling series of F-loans at close to

the policy rate with maturities ranging from one week up to six months. These

have been inter-meeting announcements, with another U.S.-dollar denominated

F-loan, with three-month maturity, unveiled Tuesday.

     -The committee will also publish its forecasts in the Monetary Policy

Report (MPR), its second full assessment of the likely policy patch and economic

outlook following the Covid-19 hit.

     The previous MPR showed non-oil GDP growth remaining just positive this

year, at 0.4%, and rebounding next year, with 2.2% growth pencilled in. With low

coronavirus infection rates and some easing of its lockdown underway Norway

appears better off than many other places.

     Nevertheless, a sharp cut in the GDP estimate for the year looks likely.

Statistics Norway estimates mainland GDP growth will shrink 5.5% in 2020,

following a 1.5% quarterly contraction in the first quarter.

     -The central bank, in part due to currency weakness, saw inflation holding

above the 2.0% target at 2.4% this year and 2.2% next.

     The collective rate path is likely to show another rate cut being at least

partially factored in, assuming that it is not cut at this meeting, while the

inflation forecast could be eased as evidence of global disinflation mounts.

     The policy announcement is due at 10:00 local time Thursday.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: MT$$$$,MX$$$$]