MNI STATE OF PLAY: Norges Bank On Hold For Near Future

--Dovish Risks on the Horizon, Economic Slack Noted

By Kieran Williams

     LONDON (MNI) - The Norges Bank kept their key policy rate unchanged at

0.50% at their October meeting Thursday, stating they expect the key rate to be

on hold for the foreseeable future.

     Norges Bank Governor Oystein Olsen said that "the outlook and risk scenario

for the Norwegian economy did not seem to change significantly since the

previous monetary policy report. Therefore, we keep the key rate unchanged at

this meeting."

     In assessing the economy, the Bank noted there was still significant slack

and that inflation was below target. "Capacity utilization in the Norwegian

economy was considered to be below normal levels, and inflation was expected to

remain below 2.5 per cent in the next few years," the Bank said in their

statement accompanying the policy decision.

     The Bank perceived that "developments have so far been around in line with

the picture presented in Monetary Policy Report," but also noted that the krone

was slightly weaker than expected.

     In September the Bank suggested that a rate hike would not occur before

mid-2019, though this is some six-months later than forecast at the start of

2017 it has been bought forward since the forecast in June and is reflective of

progress in economic fundamentals since the middle of the year.

     Risks are to the downside for the Norges Bank forecasts, which project the

key rate at 1.40% by the end of 2020. On the Bank's forecasts inflation will not

hit the 2.5% target until 2021.

     Relative monetary policy looks set to be the main driver of the krone as

the level of oil appears more stable. The ECB are expected to begin gradually

slowing their easing policy, which would weaken the krone and put some upward

pressure on inflation.

     This scenario would keep rate in Norway low for longer than the current

forecast to help bring inflation to target, and would help stimulate a flagging

housing market.

--MNI London Bureau; +44 203 865 3809; email: kieran.williams@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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