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MNI STATE OF PLAY: Norges Bank Brings Hike Forward To Late '21

The Norges Bank brought forward the timing of its first projected hike to the second half of 2021, bringing it into line with the tightening route expected by markets after its March meeting and first full forecast round this year, and pointed to a faster-than-expected rollout of Covid vaccines and U.S. fiscal stimulus.

The Norwegian central bank's Monetary Policy and Financial Stability Committee lifted its entire rate curve, with the policy rate shown rising gradually from the current zero to 1.36% at end 2024.

Its December rate path had the first hike in the first half of 2022

"Market-implied rates indicate that Norwegian policy rate expectations have risen since December and now suggest that the next move will be a policy rate hike towards the end of 2021," the Committee said, concluding that "the policy rate will most likely be raised in the latter half of 2021."

SHORT-TERM INFLATION BOOST

Its detailed forecasts showed inflation on the CPI-ATE measure falling from above the 2.0% target to below in the first half of 2021 and then staying there for the remainder of the three-year projection despite the output gap closing by the first quarter of 2022.

Higher commodity prices and freight rates were expected to push up near-term inflation but this should not endure and "global inflation will remain close to or below inflation targets in the coming years."

The committee expected its projected rise in interest rates to cool the Norwegian housing market, which has seen prices rise faster than anticipated in recent months.

"The rise in house prices is projected to slow gradually. There are prospects that house price inflation will be fairly low in the coming years, owing in part to higher interest rate," it said.

The Bank's growth projections were only raised a little overall. Mainland, or non-oil, GDP was projected to rise 3.8% in 2021, just 0.1 percentage point above the December forecast, and by 3.4% in 2022, 0.3 point higher than previously expected. Wage growth forecasts were pushed up to 2.4% in 2021 from 2.0% and to 2.6% from 2.3% for 2022.

MNI London Bureau | +44 203-586-2223 | david.robinson@marketnews.com
MNI London Bureau | +44 203-586-2223 | david.robinson@marketnews.com

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