MNI STATE OF PLAY: Norges Bank Outlook Unch; Post Summer Hike

By David Robinson

     LONDON (MNI) - The Norges Bank's Executive Board left its key policy rate

unchanged at 0.5% at its May meeting, with an Autumn rate hike still on the

cards.

     In the accompanying statement, Governor Oystein Olsen said there has been

no substantial change in the outlook since the central bank completed its last

full forecast round in March.

     The May meeting was an interim one, with no new rate forecast published by

the central bank. The lack of material change from March entails that the

central bank is still steering towards a rate hike after the summer.

     "The outlook and the balance of risks do not appear to have changed

substantially since the March Report. This suggests keeping the key policy rate

unchanged at this meeting", Olsen said.

     The Norges Bank's in-house forecast in the March report showed the policy

rate rising to 0.76% by the end of 2018, fully factoring in a 25 basis point

rate hike. The probabilities attached to the rate outlook showed a 90% chance

that the rate would be within a -1.11% to 2.64% range, with a hike more likely

than not in the autumn.

     --AUTUMN HIKE

     Back in March, Olsen said the balance of risks suggested "that the key

policy rate will most likely be raised after summer 2018."

     Inflation since the March report has undershot the central bank's own

forecast and target but its view is that as the economic slack disappears

inflation pressures will mount.

     In the March Monetary Policy Report Norges Bank said that the output gap

was closing and rising capacity utilisation would push up on prices and wages

down the road, making a post summer interest rate hike the most likely outcome.

     In the May 2 meeting the Executive Board assessed the new information

against the March report.

     It said that "growth among Norway's trading partners so far in 2018 has

been slightly weaker than projected in March" but global inflation had picked

up.

     --LITTLE NEW DATA

     Overall the board said that there was little new information about the

Norwegian economy. Goods consumption in the first quarter was lower than

expected, house prices had stabilised and oil prices had come in higher than

expected.

     The headline inflation measure, CPI-ATE, which excludes energy prices, was

just 1.2% in March.

     The picture of the Norwegian labour market was pretty much unchanged, with

the registered unemployment rate flat at 2.4% and at 3.9% on the international

standard Labour Force Survey measure. 

     "The Executive Board's assessment is that the upturn in the Norwegian

economy appears to be continuing broadly in line with the picture presented in

the March Report. Underlying inflation is below the inflation target, but the

driving forces indicate that it will rise," the board's assessment stated.

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

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

[TOPICS: MX$$$$]