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--Norges Bank Executive Board Leaves Key Policy Rate Unchanged At 0.5%
By David Robinson
     LONDON (MNI) - The Norges Bank's Executive Board left the key policy rate
unchanged at 0.5%, as expected, and reaffirmed that the key policy rate will
most likely be raised at the September meeting.
     The board took the view that the big picture outlook for the Norwegian
economy had not materially altered since it last published its full set of
economic forecasts in June and it again pointed to a September hike.
     In its assessment, the board noted that inflation on its target measure,
CPI-ATE, had risen faster than expected but was still below target. 
     In June the central bank predicted CPI-ATE would rise through the summer
months from June's 1.1% to 1.2% in July and 1.5% in Aug. The subsequent data
showed CPI-ATE hitting 1.4% in July and the Executive Board expects it to climb
eventually to target.
     "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
June. Underlying inflation is below the inflation target, but the driving forces
indicate that it will rise further out. Overall, the outlook and the balance of
risks do not appear to have changed substantially since the June Report," the
Board said in its assessment.
     With the big economic picture materially unchanged, the vote to keep the
key policy rate at 0.5% was unanimous.
     The board said that economic developments among its trading partners had
been broadly as it expected but it did note the risk posed by trade wars and
political tensions which had fed through to falls in some currencies and equity
prices without, so far, altering the overall outlook.
     On the domestic front, employment growth was a little weaker than the
central bank expected, while unemployment continued to decline and the krone was
a little softer than the Norges Bank had assumed in June.
     Norges Bank only puts quarterly numbers on its collective policy rate path
forecast but it is possible to estimate the probabilities of a change at its
monthly meetings. In the latest quarterly economic forecast, published in June,
the central bank attached a negligible probability to a hike in August and put a
near 100% chance on a 25 basis point rise in September.
     The June policy assessment showed the output gap turning positive in 2019,
unemployment on the international standard labour force survey measure falling
from 3.7% this year to 3.3% in 2019 and to 3.2% in 2020.
     Against this backdrop the key policy rate was shown rising to 1.1% in 2019
and on up to 1.6% in 2020. Norges Bank's estimate of the neutral, or
equilibrium, policy rate was that it would reach 1.1% in 2019 and 1.6% in 2020.
--MNI London Bureau; tel: +44 203-586-2223; email:
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