Since September, several factors pull in the direction of a lower interest rate path from Norges Bank: eco-nomic growth appears to be both slower and more fragile than expected by Norges Bank, wage and price growth seem weaker, the NOK is stronger and money market premiums have stayed higher. On the other hand, international interest rate expectations have increased somewhat and the housing market has once again surprised on the upside. We believe Norges Bank will keep its policy rate on hold at the upcoming meeting, but lower the path for the key policy rate, signalling an increased likelihood of a rate cut in H1 2017.
Non-farm payrolls in November were in line with expectations, increasing by 178,000. The unemployment rate declined unexpectedly to 4.6 percent, whereas hourly earnings fell by 0.1 percent, which was signifi-cantly weaker than expected. We keep our view that the next increase in the federal funds rate will take place in December. Financial markets agree and now fully price in such a rate hike.