PREVIEW: Norges Bank On Track For Second-Half 2019 Hike

By David Robinson

     LONDON (MNI) - The Norges Bank is expected to stick to its March guidance

at its May meeting, which is sandwiched between the March and June forecast

rounds and their associated key policy decisions.

     Following are key points expected from Thursday's announcement:

     --The Executive Board will only make a relatively brief statement Thursday.

     Market expectations are for unchanged policy. The one plausible surprise

the board could spring is to narrow its guidance, but there seems to be little

compelling reason for it to do so.

     Nevertheless, the Norges Bank will remain an outlier as a central bank in

an advanced economy still clearly set on a tightening path.

     --The Executive Board is likely to stick with its March assessment of the

economic outlook and balance of risks, which stated that: "the policy rate will

most likely be increased further in the course of the next half-year."

     -- MNI's assessment is that the March forecasts indicated a 10% chance of a

25-basis-point May hike, with a 75% probability of one by June, 90% by August

and 100% by September.

     There is a further 50% chance of an additional hike by October.

     There will be no update of the forecasts in May and the Board's commentary

will be super-imposed over the March projections.

     --The narrative that underpinned the March rate hike, of robust domestic

growth pushing up on inflation, looks to be holding good.

     Key data will come in between the May meeting and the June policy decision,

adding to the case for Norges Bank to maintain the status quo.

     The Norges Bank's March Regional Network Report, its quarterly business

survey, found that firms were expecting output and investment growth to hold up,

with annual output rising at a near 3% rate.

     Despite evidence of weaker overseas demand and downside risks, the

Norwegian economy has remained robust with rising employment and declining

unemployment.

     The unemployment rate fell to just 2.2% in April. The Norges Bank expected

unemployment to remain low and the data support the view that labour market

slack is close to non-existent, although wage growth has not seen any rapid

acceleration.

     Higher oil price should support the offshore sector, although forward oil

curves are now downward sloping.

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

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