MNI REVIEW: Norges Bank Leaves Repo Rate At 1.5%; Steady Ahead

--Norges Bank Forecast Removes Any Chance Of Q1 Hike; Leaves Door Ajar To Hike

Further Out

By David Robinson

     LONDON (MNI) - Norges Bank's Executive Board kept its policy rate unchanged

at 1.50% and altered its collective forecast to show no chance of a hike in the

first quarter, although a small chance remains of an increase from Q2 onwards.

     Following are key points from the Norges Bank's policy decision, statement

and the forecasts in its Monetary Policy Report.

     --The decision to leave the policy rate at 1.5% was in line with

expectations and the broadly flat rate path going forward was also expected.

     "The Executive Board's current assessment of the outlook and balance of

risks suggests that the policy rate will most likely remain at this level in the

coming period. The decision was unanimous," Governor Oystein Olsen said in a

statement on behalf of the executive board.

     --Norges Bank adjusted its collective rate path. On Market News estimates

it had previously attached a 40% chance to a rate hike by the first quarter but

this was cut to a zero probability.

     After the first quarter the rate path was broadly unchanged from the one in

September, with some probability attached to a 25-basis-point hike.

     The policy rate was shown at 1.5% in the first quarter, rising to 1.58% by

the end of the second quarter and peaking at 1.6% by end 2020 through to end

2021, suggesting that while a 25-basis-point is plausible the Norges Bank never

sees it as more likely than not.

     --The central bank said that a key upward force on inflation, and thus its

interest rate forecast, was krone weakness, but evidence that "the upswing in

the Norwegian economy appears to be a little more moderate than previously

assumed" had pushed down on its rate projection.

     --Norges Bank factored continuing krone weakness into its forecasts. The

import-weighted I-44 exchange rate index depreciated by around 2% since the

September forecast round, again coming in weaker than the central bank had

assumed. The central bank is assuming only very modest appreciation ahead.

     Norges Bank deputy governor Jon Nicolaisen told MNI in a recent interview

that demand for safe haven, liquid currencies and concerns over the long-term

outlook for Norwegian oil production appeared to be weighing on the currency.

     The MPR reflected some of this thinking, noting that "Persistent

uncertainty about global developments may have contributed to a weaker krone

over time" and that "the uncertainty may have pushed up the risk premium on the

Norwegian krone and other currencies with limited liquidity."

     The central bank said that the conditions that had weakened the krone were

expected to continue in the years ahead. It forecast its exchange rate index

would move to 108.2 in 2021 and to 108.0 in 2022, from 109.0 in 2020. A lower

I-44 reading indicates a rise in the currency.

     --Projected GDP growth was cut by 0.3 percentage point to 1.0% for this

year but then raised by 0.2 percentage point to 2.4% in 2020 and by 0.1 point to

2.0% in 2021, with the totality of forecast changes broadly neutral.

     Unemployment on the LFS measure was shown flat-lining, coming in at 3.6% in

2019, before dipping to 3.5% in 2020 and 2021, before nudging up to 3.6% in

2022.

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

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