UPDATE 2-Norway central bank keeps rates on hold, repeats plan to hike in Sept

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* Economic upturn in line with June predictions – Norges Bank

* Bank notes signs that below-target inflation will rise

* Rates will rise in Sept unless unexpected happens – DNB Markets (Adds further analyst comment, background, updates currency)

By Camilla Knudsen

OSLO, Aug 16 (Reuters) – Norway’s central bank kept its main policy interest rate unchanged at a record low 0.50 percent on Thursday, as expected, and reiterated plans for a September increase, in line with its earlier forecast.

“The upturn in the Norwegian economy appears to be continuing broadly in line with the picture presented in June,” the bank said. “Underlying inflation is below the inflation target, but the driving forces indicate that it will rise further out.”

A policy tightening, Norges Bank’s first in seven years, would come despite inflation being significantly below target, as higher oil prices, a rebound in the housing market and accelerating growth drive the need for higher rates.

“Rates will rise in September unless something very unexpected were to happen,” DNB Markets economist Jeanette Stroem Fjaere wrote on Twitter. “If anything the bank’s short term estimates indicate that the probability for a hike in September is even higher.”

Norway’s currency, the crown (NOK), weakened slightly after the bank’s announcement, trading at 9.6010 against the euro at 0850 GMT from 9.5860 earlier.

Brokerage Nordea Markets said the currency’s weakness could trigger even more rate increases. “If NOK remains at current levels going into the September meeting, it would warrant a significant upward revision of the rate path, implying a December hike, all else equal,” it said.

“However, Norges Bank has argued for moving carefully in the monetary policy so although a December hike seems farfetched, risks are tilted that way,” Nordea added.

The bank’s decision was unanimous and as expected by economists polled by Reuters. (Editing by David Stamp)

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