MNI PREVIEW: Domestic Strength Keeps Norges Bank Hike Alive

By David Robinson

     LONDON (MNI) - - The Norges Bank could still raise interest rates Thursday,

despite easing moves by other central banks, as the Norwegian economy remains

strikingly durable in the face of international turbulence. A hike is not a

certainty, with financial markets split down the middle on whether a September

rate rise is coming.

     The following are key pointers ahead of the bank's policy decision:

     -The Bank's June collective rate path put a 50% chance on a 25bps hike by

September on MNI calculations, lifting the policy rate to 1.5%. Analysts are

split down the middle over whether it will raise the policy rate and the public

comments of board members have not tilted the scales either way. But the central

bank is on the tightening path and there has been little in the domestic data to

deter it.

     --Norges Bank could well use a new collective rate path in the Monetary

Policy Report to dampen the impact of its decision to either hike or leave the

policy rate unchanged.

     A hike could well be accompanied by a flatter path ahead, which would

suggest a September increase could be the final one in this cycle, while no

change could see a hike by the turn of the year be shown as a near certainty.

June's collective projections put the repo rate at 1.6% in 2020 and 1.7% in

2021, so even removing 10 basis points of tightening after a September hike

would point to no further tightening next year.

     -The central bank's Regional Network Report found economic activity holding

up, boosted by a revitalised oil sector. Annual output growth was estimated at

3.0%, with softer employment growth in swathes of the economy partially offset

by accelerated hiring in the oil sector.

     -The surge in the oil price following the attacks on Saudi Arabian

facilities is likely to have had little or no influence on the central bank's

thinking, despite oil and petroleum making up over half of Norwegian exports.

The oil price's impact on the Norwegian krone is key to inflation dynamics but

the currency barely moved in response to the latest price shock.

     -There has been little in the way of fresh comment from Norges Bank policy

makers in recent weeks and Governor Oystein Olsen's comments alongside the

August decision suggesting the "outlook for the policy rate for the period ahead

is little changed since the June Report. The global risk outlook entails greater

uncertainty about policy rates going forward" offered analysts the suggestion

that the chances of a September hike were unchanged and as highlighting downside

risks, which could be compatible with a flatter curve ahead if they transitioned

into the central projection.

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

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