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Needle Still Points South

By David Robinson
     LONDON (MNI) - Oystein Olsen, Governor of the Central Bank of Norway spoke
and took questions at a Finance Norway event in London.
     Here are five things we learnt:
     1) Norges Bank head Oystein Olsen expects to hike the key policy rate from
0.5% later this year and he is only leaving himself a little wriggle room on
timing. The Norges Bank rate path suggests a hike by September at latest is near
inevitable but analysts have been divided over exactly how soon it will come.
     In his speech Olsen came close to ruling out an early hike, saying that the
policy rate will "most likely be raised after summer this year."
     "The outlook for the Norwegian economy suggests that the key policy rate
may be increased this year for the first time in seven years - this is a good
sign," he added.
     So the window for the hike is from early Autumn through to the winter, with
September looking a good bet.
     2) Olsen does not want to play the game of finessing that rate hike
guidance further. 
     He said in the question and answer session that he was not going to give
another new signal on policy.
     The Norges Bank's rate hike path provides guidance but "every forecast is
conditional" and things could change, he said.
     3) Olsen believes Norges Bank's policy of publishing its own most likely
rate path works as a communications tool.
     Asked by Market News if a central bank should set out its own rate path,
which the Bank of England has steadfastly refused to do, Olsen defended the
practice.
     One view at the BOE is that when a central bank sets out its own most
likely rate path, rather than using the market path, it runs the risk of
confusing some observers, who might mistake it for a commitment.
     Olsen said that he didn't think that there been misunderstandings between
Norges Bank and journalists and commentators trying to interpret central bank
policy. An alternative practice of using key words and phrases as policy guides
can itself lead to confusion, he said.
     4) Olsen is pretty upbeat about the Norwegian economic outlook. 
     Norges Bank's latest projections show the negative output gap closing early
next year, infrastructure investment is increasing and exports are rising.
     5) The housing sector remains a problem.
     Rapid house price inflation in recent years gave rise to lending curbs. Siv
Jensen, Norwegian Minister of Finance, who was attending the same conference,
said that after house prices rose 25% in 2016 the case for tightening regulation
on lending was strong.
     The new regulations on residential mortgages expire in June this year and
Jensen said that they were reviewing them with a view to keeping them in place.
While this may be justifiable from a financial stability perspective it does
carry economic costs.
     "Housing investment has fallen, and is likely to decline further," Olsen
said.
--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com
--MNI London Bureau; +44 203-586-2226; email: jamie.satchithanantham@marketnews.com
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