UPDATE 2-Norway’s central bank holds interest rates, signals earlier hike

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OSLO, March 15 (Reuters) – Norway’s central bank kept its key interest rate unchanged at 0.50 percent on Thursday, but said it expected to push through its first hike in seven years earlier than a previous forecast of December.

Norges Bank linked the forward shift in the rates path – which drove the crown to a four-month high – to a prediction of higher growth and lower unemployment this year, as the economy continues to recover after a 2014-2016 slump.

The bank will most likely hike rates in either August or September, Governor Oeystein Olsen told a news conference.

Earlier, he cited the executive board’s “current assessment of the outlook and balance of risks” as determining that decision.

The announcement sent the Norwegian crown to its highest level against the euro since November 2017.

All 13 economists polled by Reuters had predicted the bank would leave the deposit rate unchanged. Five saw a hike coming no later than September, while a further five expected it by the end of the year.

In common with most major central banks in developed economies, Norges Bank is debating when to break with a long period of loose monetary policy.

While the U.S. Federal Reserve and the Bank of England have both embarked on a tightening cycle, the Swedish Riksbank and the European Central Bank have yet to do so.

“They signal a rate hike in September and then there is a small opportunity that they do it before that too,” said Kjetil Olsen, chief economist at Nordea Norway.

“But most likely it will be in September… They are upgrading their view slightly on the economy, and that is the main reason why they accelerate the rate increase a little.”

Oil producer Norway is gradually recovering from a drop in crude prices since 2014, with signs of improvements in the housing market and inflation picking up.

The bank now sees mainland growth, which excludes the volatile oil and shipping sectors, at 2.6 percent in 2018, up from a December prediction of 2.3 percent.

However, forecasts for 2019 and 2020 were each cut by 2 tenths of a percentage point.

Erica Blomgren, chief strategist at SEB Norway, agreed a September hike was most likely.

“What was surprisingly hawkish was the change at the short end. They signal a rise in interest rates in September and one in the first quarter of 2019, which is a bit faster than expected, while signalling a very gradual rate increase after, with about two rate hikes per year.” (Reporting by Oslo newsroom; editing by John Stonestreet)

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