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-Norges Bank Steers Towards Autumn Hike; Downplays Change In Target 
By David Robinson
     LONDON (MNI) - The Norges Bank left its key policy rate unchanged at 0.5%
Thursday and downplayed the impact on policy of its lower inflation target, but
gave a clear steer that a rate hike in the Autumn was on the cards.
     The Norges Bank stated that "it will soon be appropriate to raise the key
policy rate" with Governor Oystein Olsen providing a steer on timing, saying
that "the key policy rate will most likely be raised after summer 2018."
     The central bank's Monetary Policy Report (MPR) mixed caution over a
near-term hike, with inflation still well below target, with a clear message
that interest rates were heading higher, despite inflation currently
undershooting target. 
     Its interest rate projection showed that "the key policy rate will be
raised after summer 2018, followed by a gradual increase to around 2% around the
end of 2021," the MPR stated. That rate profile suggests tightening will come
earlier and the path will be higher than assumed in the December MPR.
     Norges Bank said that this higher interest rate path reflected a mix of
more elevated interest rates abroad and stronger domestic demand but this was
partially offset by lower than expected price and wage inflation.
     Thursday's policy decision is the first since the Norges Bank saw its
inflation target cut to 'close to 2.0%' from 2.5% on March 2. The upward effect
of the lower target on policy is dampened because it came into force at a time
when inflation had been markedly undershooting the old, higher target.
     "In the near term, a lower numerical target implies a slightly less
expansionary monetary policy as actual inflation is somewhat closer to target,"
the MPR said.
     Further out, the lower inflation target should "see a somewhat lower
(nominal) rate in the longer term," the Norges Bank, with the real interest rate
rising throughout the projection period and turning positive around end 2021.
     "Because inflation is moving higher, the rise in the real interest rate
will be less than the rise in the key policy rate," the Norges Bank said.
     Headline inflation was forecast to rise to a touch over 2% by the end of
     The policy analysis and MPR appear to strengthen the case of those analysts
and market participants who were predicting a September hike and to weigh
against those predicting a year end move.
--MNI London Bureau; tel: +44 203-586-2223; email:
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MNI London Bureau | +44 203-865-3812 |