MNI PREVIEW: Norges Bank Set For Hike, And More May Be On Way

-June Hike, Lifting Rate To 1.25%, Trailed By Norges Bank; Focus On If It

Signals Another 2019 Hike

By David Robinson

     LONDON (MNI) - Norges Bank's Executive Board is set to announce a

clearly-flagged 25-basis-point hike in its policy rate on Thursday, taking it to

1.25%, with the focus on how far the central bank's rate forecast goes in

pricing in a subsequent hike this year.

     Norges Bank is a lonely hawk among central banks, but recent strong

domestic data provides it with ready justification for tightening. Its rate

forecast could also show another hike this year is more likely than not, albeit

tracing a slightly flatter rate path for 2020 and 2021.

     The Bank's business survey, the Regional Network Report, showed output

growth running at its fastest level since Autumn 2012, wage growth is set to

rise to over 3% and businesses face growing capacity constraints. Norway's

output gap is assumed to be pretty much closed.

     Even though a hike would widen interest rate differentials, with the Fed

and European Central Bank both tilting toward easing, tending to push up the

krone, exchange rate concerns are not an obvious bar to hiking. Since its March

21 rate increase, when the Norges Bank made its most recent forecasts on the

assumption of an appreciating currency, the krone has weakened 3.4% versus the

dollar and 1.7% versus the euro.

     The Norges Bank Executive Board could also lower its projections for the

policy rate after 2019, which would curb the growth in rate differentials.

     The probability of a hike implied from its March forecasts, according to

MNI calculations, was 75% by June, 100% by September and 150% by October,

implying that another 25-basis-point increase was 50% priced in. The policy rate

was shown rising to around 1.7% and holding there from late 2021.

     Now, a June hike is widely seen as 100% likely and on Thursday Norges Bank

could increase the odds of another hike this year to above 50%, or even fully

price one in, but then nudge down the rate path for 2020 and 2021.

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

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