MNI POLICY: Norges Bank Hikes; Near Term Policy Path Unchanged

-Board Says Next Hike Most Likely Q1 2019; MNI Estimates 20% Dec Hike 

By David Robinson

     LONDON (MNI) - The Norges Bank's Executive Board hiked its key policy rate

to 0.75% from 0.5%, in a clearly-trailed move, but left its near-term collective

rate projection unchanged with the next hike most likely in the first quarter of

2019.

     A revised projection included in the bank's Monetary Policy Report showed

board members anticipate the key policy rate will average 0.76% in the fourth

quarter. Market News calculates this is compatible with a 20% chance of a

December hike.

     The near-term rate profile was unchanged from the previous projection in

June, with the policy rate expected to rise to an average 1.0% in the second

quarter of next year. It increases to 1.22% by the fourth quarter of 2019, down

from 1.26% in June. The bank lowered its forecast for the fourth quarter of 2021

to 2.09% from 2.18%.

     This implies that the board, on top of today's rates move, is pricing in

two 25-basis-point increases in 2019.

     "Overall, the outlook and the balance of risks imply a gradual interest

rate increase in the years ahead ... the interest rate path is little changed

from the June Report," the Executive Board assessment stated.

     In June, the board forecast the key policy rate would be raised by 0.25

percentage points in September, followed by a gradual increase to just above 2%

at the end of 2021.

     The board warned that if the key rate was left unchanged for too long,

price and wage inflation might accelerate.

     "The Executive Board's current assessment of the outlook and balance of

risks suggests that the key policy rate will most likely be increased further in

2019 Q1," it concluded.

     The revised economic projections had to factor in a sharper-than-expected

rise in inflation, with the target CPI-ATE measure up at 1.9% in August.

     The new forecasts show it peaking around this level, averaging 1.86% in the

first quarter of next year, up from 1.56% in the previous estimate. However, by

Q4 2021 CPI-ATE was seen at 1.85%, versus the 2.02% expected in June.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com