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By David Robinson
     LONDON (MNI) - The Norges Bank's Executive Board narrowed down policy
guidance following its June meeting, stating that "the key policy rate will most
likely be raised in September 2018," with the board's rate projections showing a
25 basis point rate hike every six months throughout the forecast period. 
     The Executive Board had previously said a rate hike was most likely "after
the summer". The explicit guidance that there will be a hike in three months'
time reflects the solid growth in the Norwegian economy and shrinking spare
capacity but the three year rate outlook was little changed from the previous
projection in March.
     The Executive Board's collective judgement of where the key policy rate
will head showed the quarterly average rate rises from the current 0.5% to 0.76%
in the fourth quarter to 1.01% in the second quarter of 2019 and 1.26% in the
fourth quarter of 2019 and 1.50% in the second quarter of 2020, reaching 2.18%
by the final quarter of 2021.
     --HIGHER RATE PATH
     That path is a shade higher than the previous one, published back in March,
which had the policy rate reaching 2.13% by the fourth quarter of 2021 and 1.21%
in the fourth quarter of 2019, with the broader brush picture of six monthly
hikes unaltered. 
     The quarterly average for the third quarter dipped to 0.53% from 0.58% in
March, which caused some confusion in some market commentary but which appears
to be a quirk of the quarterly averaging method used in the rate projections.
     "The outlook for the Norwegian economy suggests that it will soon be
appropriate to raise the key policy rate. Uncertainty surrounding the effects of
a higher interest rate suggests a cautious approach," Norges Bank Governor
Oystein Olsen said in a statement.
     The Executive Board's decision to leave the policy rate on hold at the June
meeting was unanimous.
     In the detailed accompanying monetary policy analysis, the Norges Bank said
that "the interest rate path is little changed from the March report."
     The higher oil price and higher capacity utilisation pushed up on the rate
path but offsetting this was lower than expected underlying inflation and a
softer outlook for interest rates and growth abroad, including the weaker
outlook for the euro area.
     Monetary policy in Norway is still set to remain expansionary with the
neutral policy real rate estimated at 0 to 1%.
     The Norges Bank lowered its forecast for its target inflation rate,
CPI-ATE, compared to March, showing it only drifting up to the 2% level in 2021.
On this basis the nominal neutral rate range will go from a shade below 2% to
reach 3% three years with the key policy rate only reaching the bottom of this
range from mid 2021.
--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com
[TOPICS: M$B$$$,M$E$$$,MX$$$$,M$$BE$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com