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Free AccessMNI REVIEW: Norges Bank Hikes; Lowers Rate Path For 2021
By David Robinson
LONDON (MNI) - Norges Bank's Executive Board hiked its policy rate by 25
basis points to 1.0% and raised its near-term collective rate profile, but
lowered the rate path further out.
The policy decision was accompanied by the release of the quarterly
Monetary Policy Report (MPR), which contains the Bank's economic forecasts and
the collective rate path of its board.
Following are key points from the report and the policy decision:
--As well as hiking 25 basis points Norges Bank indicated that another hike
was likely on the way in the back half of 2019.
"The Executive Board's current assessment of the outlook and balance of
risks suggests that the policy rate will most likely be increased further in the
course of the next half-year," the statement said.
--The collective rate path was raised near-term but the board removed a
25-basis-point hike in 2021 compared to its December projections.
The forecast showed that after the additional 25-basis-point hike this year
the policy rate would rise only slowly to reach 1.75% at the end of 2022.
The MPR stated that the shift upwards in the policy rate projection at the
start of the forecast "partly reflects stronger domestic demand and a weaker
krone."
The downward revision further down the line reflected gentler expected
tightening abroad, with Riksbank head Oystein Olsen having previously stated
that its policy is constrained by those of major central banks.
--The near-term inflation forecast was raised, following surprisingly
strong recent data, with inflation spiking above the 2.0% target on the CPI-ATE
measure. It was then shown falling back close to the 2.0% target and staying
there from 2020 onwards.
The board is prepared to accommodate, at least in part, the near-term
inflation overshoot because of concerns over downside risks from abroad.
"The uncertainty surrounding global developments and the effects of
monetary policy suggests a cautious approach to interest rate setting. That
judgement implies a somewhat smaller upward adjustment of the interest rate path
than new information in isolation would indicate," the MPR stated.
--The MPR said that krone weakness could persist, with signs that the
equilibrium exchange rate had fallen.
"The conditions that have contributed to a weak krone are assumed to be of
a more permanent character than envisaged earlier," the report said.
The MPR contained an analysis of the drivers of the krone exchange rate. It
cited the oil price as a key factor, with a persistently lower oil price leading
to a weaker equilibrium exchange rate and softer wage growth in order to boost
competitiveness.
"Since the oil price fall, the nominal exchange rate has depreciated
markedly, and wage growth has been low," the report said.
The oil price was forecast to drift down from USD66 per barrel in 2019 to
USD65 in 2020 and USD63 in 2021.
The impact of the lower exchange rate on policy setting was deemed to be
broadly neutral, as higher imported inflation is offset by the weakness of wage
growth.
--The detailed forecasts showed robust near-term growth for Norway,
excluding the offshore oil component, with mainland GDP seen up 0.6% on the
quarter in Q1 and up 0.8% in Q2.
The 2019 GDP forecast was raised to 2.7%, up 0.4 percentage point from the
December projection, and raised to 1.8% for 2020, up 0.2 percentage point.
Unemployment was forecast to flat-line at 2.3% in coming months and to dip
to 2.2% in 2020.
--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com
[TOPICS: MT$$$$,MX$$$$]
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.