MNI POLICY: Norges Bank Steers To March Rate Hike

--MNI Estimates: Norges Bank Puts 10% Chance On Jan Hike; 90% March

By David Robinson

     LONDON (MNI) - Norges Bank's Executive Board on Thursday kept its key

policy rate unchanged at 0.75 percent and said a hike was likely in March.

     Following are key points from its policy statement and quarterly Monetary

Policy Report (MPR):

     -The Executive Board had been steering expectations towards a first quarter

hike and on Thursday it revealed that the hike was more likely to come at its

March meeting rather than in January.

     "Our current assessment of the outlook and the balance of risks suggest

that the policy rate will most likely be raised in March 2019", Governor Oystein

Olsen said.

     --From the board's collective policy path, MNI estimates that Norges Bank

is putting just a 10% chance on a 25-basis-point January rate hike and a 90%

chance on a March one. In its September MPR Norges Bank put a 30% chance on

January and 70% on March.

     --The fall in oil prices and evidence of slower growth abroad led Norges

Bank to lower its rate projection. The overall path still showed steady

tightening but was slightly lower than in September.

     The policy rate was shown rising to 1.96% by the end of the three-year

forecast horizon, down from 2.09% in September. The differences were marginal

near term. In Q4 2019 the policy rate was shown at 1.22% compared to 1.20% in

September.

     --Norges Bank nudged down its MPR growth forecasts from September and

raised its inflation forecast. Mainland, or non-oil, GDP growth was shown coming

in at 2.3% in 2019 before slowing markedly to 1.6% in 2020, with both forecasts

cut by 0.2 percentage point.

     Unemployment was seen flat-lining at 3.8% in 2019, 2020 and 2021.

     --Norges Bank took the view that spare capacity has evaporated and that

there was clear evidence of tightness in the labour market. The output gap was

projected to turn positive in 2019, coming in a 0.4% of GDP, and to stay

positive through 2020 and 2021.

     --Against the backdrop of rising earnings and a positive output gap,

inflation on the CPI-ATE target measure was shown reaching the 2.0% goal in

2019, a 0.3% increase on the prior forecast. It was then shown falling only

marginally to 1.9% in 2019 and 2020 -- a 0.3-point rise compared to the

September projection.

     --The big picture is one of a still-strong domestic economy running around

full capacity, but with a gloomier international outlook weighing on the

projected tightening path.

     "Growth among Norway's trading partners has been solid in recent years.

However, there are now signs that GDP growth is tapering off, primarily

reflecting slower growth in Europe and emerging economies," the MPR stated.

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

[TOPICS: MT$$$$,MX$$$$]