MNI REVIEW: Norges Bank Hikes 25 Bps; Another 2019 Hike Likely

--Norges Bank Head Says Further Hike Likely In 2019

--Norges Bank Forecasts Place 90% Chance On Hike By Oct: MNI Estimate

By David Robinson

     LONDON (MNI) - The Norges Bank hiked its key policy rate by 25 basis points

to 1.25% and said another increase was likely in 2019.

     Following are key points from the Executive Board's announcement and the

accompanying Monetary Policy Report, which contains quarterly forecasts:

     --MNI estimates the Norges Bank's updated rate path puts a 90% chance on a

hike by October. Norges Bank publishes quarterly point estimates of its rate

projections, and probabilities of moves at individual meetings can be

extrapolated.

     The board's verbal guidance was that "the policy rate will most likely be

increased further in the course of 2019."

     --The rate projection showed an increased probability of near-term

tightening but the path flattened a touch further out.

     The policy rate was shown rising to 1.66% two years ahead, in Q2 2021,

compared with 1.70% in the previous quarterly forecast. The terminal, or end

point, forecast for Q4 2022 was 1.67%, compared with 1.73%.

     "The policy rate forecast implies a slightly faster rate rise in the coming

year than projected in the March 2019 Monetary Policy Report, but the forecast

is little changed further out," the board said.

     --The executive board justified the 25-basis-point hike by reference to the

strong domestic economy, with wage growth expected to accelerate in 2019 and

inflation currently above the 2.0% target on the CPI-ATE measure.

     "The upswing in the Norwegian economy has continued since autumn 2016.

Employment has risen, and unemployment has fallen. There are prospects that the

upswing will continue into 2020," the board stated.

     It said monetary policy remained expansionary and leaving the policy rate

too low would risk "triggering an acceleration in wage and price inflation."

     --The overseas outlook looks darker than the domestic one, with the board

focussing on increased trade tensions and the possibility of lower than

anticipated oil prices.

     Currency effects, however, may offset the dampening effects of reduced

trade on inflation, with the board stating that "the krone may remain weak if

uncertainty persists."

     Inflation is expected to hold close to target throughout the forecast

period.

     --Norges Bank economists cut projected GDP growth for 2019 to 2.0% from

2.4% but raised the 2020 growth forecast to 2.3% from 2.0% and left 2021 little

changed at 1.8%.

     Unemployment is expected to stay low, at 3.5% in 2019 on the international

Labour Force Survey measure, before falling to 3.3% in 2020 and edging up to

3.4% in 2021.

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

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