State of Play: No Change Expected From Norges Bank

-Policy Likely On Hold For Sustained Period

By Kieran Williams

     LONDON (MNI) - The Norges Bank will announce its interest rate decision

this Thursday, with the unanimous consensus among analysts that it will keep

rates on hold at 0.50%. There is no press conference with this decision but the

minutes of the meeting and voting record will be released alongside the rate

announcement.

     At its September meeting the primary message from the Bank was that policy

would remain on hold for a sustained period. The minutes of the June and

September meetings were not materially different from those released in March.

     Scrutiny is therefore expected to fall on how the committee assesses

economic developments in comparison to the forecasts made by the board in

September. Data have been slightly on the weak side but these are unlikely to

affect the stance of the Bank, particularly considering the softer numbers come

after a period of strong data.

     Last October the monetary policy statement said "overall, developments

since September do not differ substantially from the projections in the

September Monetary Policy Report," and similar language is likely to be used

this time out.

     In a research note Morgan Stanley said that "our current tracking estimate

is at 0.40% q/q versus 0.6% q/q from Norges Bank. Still, on an annual basis this

would be close to the 2.2% y/y forecast of Norges Bank and above its potential

growth estimate of 1.6% y/y, which would mean that the negative output gap

continues to close."

     Inflation in September printed 1.6%, while core prices were some 0.2

percentage points lower than the Norges Bank forecast of 1.0% and far short of

the 2.5% target. 

     The Bank is expected to look through these prices, low inflation "was due

almost entirely to lower food prices rather than a broad-based slowdown in

prices,"  Danske Bank noted.

     Subdued inflation comes despite a weaker krone, though currency base

effects are expected to fade gradually as the labour market continues to tighten

and upward pressure is exerted on wages. The Bank has indicated in the past it

is  comfortable with the level of the currency, but wary of elevated home

prices, with respect to loosening policy further.

     The wait-and-see stance is almost dictated by the proximity of the ECB

meeting later in the day where some sort of taper announcement is widely

expected. 

     While the Riksbank explicitly tied their policy to other central banks, the

Norges Bank has refrained from doing so. ECB policy, however, will impact the

Norwegian economy and thus have an impact going forward on the Norges Bank

thinking.

--MNI London Bureau; +44 203 865 3809; email: kieran.williams@marketnews.com

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

[TOPICS: MX$$$$]