Norwegian interbank rates rose the most in seven months as the euro area’s debt crisis deepened and reports indicated global growth will slow, easing pressure on the central bank to raise interest rates this year.
Three-month Nibor rose eight basis points to 2.41 percent, the biggest one-day gain since Nov. 17. The difference between the central bank’s deposit rate and Nibor widened to 91 basis points, versus a March 29 low of 73. The spread is the widest since March 2.
“Weaker global growth prospects and a deepening of the euro-zone debt crisis have intensified turbulence in financial markets,” Erica Blomgren, chief strategist at SEB AB in Oslo, said in a reply to e-mailed questions. “On the back of this U.S. dollar cash has again become more expensive, which is driving Nibor rates higher.”
Norway’s central bank has cut its benchmark interest rate by 0.75 percentage point to 1.5 percent since December in a bid to weaken the krone and alleviate pressure on exporters. Policy makers signaled in March that rates would remain unchanged for a year. Surging house prices, stronger than estimated economic growth and a drop in unemployment have prompted economists at DNB ASA (DNB), Norway’s largest lender, and Nordea Bank AB (NDA), Scandinavia’s biggest bank, to forecast that policy makers will reverse some of their easing within the next six months.
Euro-area investor confidence dropped to the lowest level in more than three years in June as the euro region’s debt crisis weighs on the economic outlook, while a drop in China’s non-manufacturing purchasing managers’ index in May added to evidence that the economy is slowing. A U.S. payrolls report showed that fewer jobs were added to the American economy than forecast.
The 11 basis point rise in interbank borrowing costs since the beginning of May is taking some pressure off the central bank to raise again and may even prompt further cuts.
“What we see now is reducing the probability of a hike in the fourth quarter and we can’t rule out further cuts from Norges Bank,” said Bjoern Roger Wilhelmsen, chief currency strategist at Swedbank First Securities ASA and a former Norges Bank economist. “In isolation, a higher three-month Nibor means a lower key policy rate from Norges Bank,” he said, adding that the rate is “only” six basis points above Norges Bank’s second-quarter estimate.
Policy makers will meet on June 20 to decide on rates and publish an updated rate forecast.
“The rise in three-month Nibor since the beginning of May is equal to half a rate hike from Norges Bank,” Blomgren said. “Should the pressure in money markets remain until the June 20 rate decision, this will put downside pressure on the new optimal rate path.”
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