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NZD Jumps As Rate Hike Expectations Accelerate


Futures Unchanged Overnight, Rinban Eyed

By David Robinson
     LONDON (MNI) - The Norges Bank released its Regional Network contacts
report Tuesday, a key report on economic activity and the outlook for economic
     -Economic growth in Norway appears to have decelerated. The report said
that there was "slightly weaker output growth than in January" and business
contacts expect moderate output growth over the next six months.
     -While the growth outlook is subdued, the labour market is continuing to
tighten. The report said that "there has been solid growth in employment over
the past three months" with jobs growth in every sector and solid further growth
expected over the next three months.
     -One of the causes of slower growth was "capacity constraints," which are
not the something open to a quick fix. In all 34 per cent of respondents said
that they were working at full capacity, up from 32% in January, with 17% citing
labour supply as a constraint on growth. The flipside of the downward pressure
on growth of capacity constraints is that recruitment difficulties should put
upward pressure on marginal pay rates.
     Business contacts said that they were planning for a marked rise in the
level of investment over the next 12 months, with service industry contacts
reporting record high investment increases.
     -Norges Bank's business contacts anticipated annual wage growth of 2.8% in
2018, up from 2.7% in the January survey. They also expected a modest rise in
selling prices over the next 12 months.
     -The report adds to the complexity of the policy decision for the Norges
Bank, which had previously signalled an Autumn rate hike and which will make its
next announcement on June 21. On the dovish side, the expected moderate output
growth follows following soft inflation data. 
     On the hawkish side, the strong employment growth and firmer earnings
outlook are supportive of the case for tightening, and business contacts do
expect prices to rise, albeit modestly. Overall, the report looks solid enough
not to disturb rate expectations.
--MNI London Bureau; tel: +44 203-586-2223; email:
MNI London Bureau | +44 203-865-3812 |