MNI STATE OF PLAY: Norges Bank Set To Reaffirm March Hike Path

--Strong Domestic Data Suggest Norges Bank To Keep March Hike Line

--Norges Bank January Policy Decision Due Jan 24 At 0900GMT.

By David Robinson

     LONDON (MNI) - The Norges Bank looks set to keep its key policy rate

unchanged at the January meeting, with strong domestic data underpinning their

pre-Christmas steer laying out a path to a March hike.

     Norway's economy appears remarkably resilient, although the outlook abroad

has become gloomier. The bank's board may simply acknowledge this by adding a

line to its policy guidance, citing the intensification of external downside

risks, while sticking to its central view that it is likely to tighten when they

meet in March.

     The board's January meeting is set to be a staging post towards the March

meet. The central bank will not publish any update to its December economic

forecasts and the board will not update its collective rate path.

     The December collective rate path, according to Market News' estimates, put

a 90% chance on a hike by March. Analysts are united in the belief that the

January meeting will result in an unchanged policy decision so the one real

point of interest Thursday whether there is any change in the steer towards a

March hike.

     --DOMESTIC DATA

     Domestic price and activity numbers provide no prima facie case for the

board to back away from tightening. Inflation, on the CPI-ATE measure, was just

above the 2.O% target in November and December with last month's 2.1% outturn

stronger than the central bank had forecast.

     The bank's November Regional Network Report found that business expected

output growth to pick up slightly in the next six months. The six month ahead

score of +1.49 was up from +1.38 for the past three months on an index which

ranges from -5 for a sharp fall in output to +5 for strong growth.

     In his December 18 regional network presentation, Norges Bank Governor

Oystein Olsen talked about a broadly based economic upturn, with rising

investment in the dominant petroleum sector, steady unemployment and

accelerating wage growth.

     Consumption growth is expected to remain solid, with real disposable income

expected to rise above 2.0% in 2019.

     All of that appears consistent with the central bank's collective view that

it will undertake gentle tightening, with a couple of 25bps hikes per year in

both 2019 and 2020.

     --DEFYING DOWNSIDE RISKS

     Olsen acknowledged the downside risks, including the ongoing global trade

conflicts, Brexit and Italian politics. Asset price volatility and the a China

slowdown could be added to the mix.

     As none of these threats, with the possible exception of Brexit, are likely

to be resolved speedily the Norges Bank board may be wary of delaying near term

tightening in the forlorn hope of greater certainty ahead.

     Norges Bank, on current market assumptions, is the only G10 central bank

expected to tighten in the first half of 2019. On Thursday, it may simply

reaffirm how unique its position is.

--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$$$$]