MNI REVIEW: Norges Bank Sees Greater Policy Uncertainty

--Norges Bank Tilts Away From September Hike

By David Robinson

     LONDON (MNI) - Norges Bank's Executive Board left policy on hold at its

August meeting and tilted away from a hike next month, citing increased

uncertainty from global risks.

     While the unchanged policy decision was widely expected, some analysts had

speculated Norges Bank would change its guidance to make clear a hike was likely

in September. But its board left the timing of any potential hike open.

     Following are key points from the policy announcement:

     --"Overall, new information indicates that 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", Governor

Oystein Olsen said.

     In June, the board hiked the policy rate by 0.25 percentage point to 1.25%

and said that the "balance of risks suggests that (it) ... will most likely be

increased further in the course of 2019."

     --The bank's summary of developments highlighted the weakening of economies

abroad.

     "Growth prospects for Norway's trading partners appear to be a little

weaker than assumed in June," the summary stated, citing the familiar issues of

U.S. and China trade tensions and Brexit uncertainty.

     --In contrast, Norwegian economic growth remained solid and in line with

the projections in the June Monetary Policy Report.

     "The upturn in the Norwegian economy is continuing broadly as expected in

June. Underlying inflation has been a little lower than projected. Deepening

trade tensions and heightened uncertainty surrounding the UK's relationship with

the EU may weigh on growth abroad and in Norway," the central bank's summary

stated.

     --The krone has depreciated rapidly in recent weeks, with the effective

exchange rate index down almost 3% on the month. Norges Bank's own research has

pointed out that the krone only tends to move in synch with the oil price when

the latter falls or rises sharply, as it has recently.

     "A weaker krone may contribute to higher inflation ahead," board noted.

     Investors factored in a lower probability of a September hike after the

announcement, although the euro/krone exchange rate, after initially moving a

little higher, soon settled back into its previous range.

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

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