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The Norges Bank remains on course to raise interest rates later this year, keeping itself at the front of the pack of advanced economy central banks preparing to tighten policy.
Policymakers voted unanimously to keep rates unchanged at 0% in May, with the Monetary Policy and Financial Stability Committee reasserting guidance that a rate hike was likely in the second half of 2021. Governor Oystein Olsen offered little new to the March statement, saying that the policy rate "will most likely be raised in the latter half of 2021,"
The May meeting was not accompanied by a full forecast round and the committee stated that the economy has developed largely in line with the quarterly projections in the March MPR. Back then, the committee's collective rate path showed the policy rate at near zero until the end of Q3, though the bank's model-only based projection supported somewhat earlier tightening.
However, there were signs that the committee does not feel under great pressure to hike soon.
While inflation on the target CPI-ATE measure ran markedly above the 2.0% goal in Q1, at 2.7% "krone appreciation and prospects for moderate wage growth suggest that inflation will moderate ahead," the committee stated.
Recent wage deals have been consistent with the central bank's forecast of 2.4% wage growth this year, it added.
May's Monetary Policy Assessment, a summary of committee views on how the economy is developing compared to the March forecast, said core inflation remained "low globally" although commodity prices and freight rates had risen.
With other central banks continuing to signal that monetary policy will remain expansionary and market forward interest rates little changed, rate differentials were relatively stable. The krone's appreciation on Norges Bank's I-44 import-weighted index was "broadly in line" with the March projections the assessment said, although the actual figures show that it has been a touch stronger.
A development supportive of a rate hike ahead is that Norwegian money markets premiums have fallen and are smaller than expected, indicating some easing in monetary conditions. Market pricing continued to point to a rate hike towards the end of this year.
On the domestic front, stricter Covid containment measures resulted in the labour market's being a little softer than expected, but progress has been made on vaccine rollout. Despite regulators still debating the authorisation of the AstraZeneca vaccine, "it does not appear that there will be substantial delay in the vaccination programme," the assessment said, adding that a large majority of the Norwegian populace is expected to be vaccinated by the end of the summer.