* Maintains outlook for rate hike in late 2022
* Recent flare-up of COVID-19 cases shows risk
* Too soon to signal end to dovish policy, governor says
* Crown currency weakens against euro (Updates with quote from governor, currency, adds context)
OSLO, Sept 24 (Reuters) - Norway’s central bank kept its policy interest rate on hold at a record-low zero percent on Thursday, as expected, and said any increase was still likely to be two years away, in line with its June statement.
Economists polled by Reuters unanimously predicted rates would remain on hold on Thursday, but some had expected the central bank to alter its forward rate curve to flag that an earlier increase could be considered.
Norges Bank thus joined its global peers in striking a dovish stance, saying a resurgence in COVID-19 infection rates might put the brakes on any economic upswing.
“We are in a historically massive downturn and face rising risk of another surge in (virus) contagion in Norway and other countries,” Governor Oeystein Olsen told Reuters. “So it is much too soon to call off the need for a very expansive monetary policy.”
The central bank’s assessment was disappointing, said Danske Bank’s chief economist, Frank Jullum, who had expected a significant upwards revision to the forward rate path.
“However, we still expect the first interest rate hike in December 2021, because we think that both the global and domestic economies are going to rebound faster than the central bank anticipates,” Jullum said.
Norges Bank has slashed rates three times since March, cutting the cost of borrowing from 1.5% to cushion the economy from the effects of the COVID-19 pandemic.
Norway’s currency, the crown, weakened to a four-and-half- month low of 11.16 against the euro at 0819 GMT from 11.08 just before the 0800 GMT announcement. It recovered slightly to trade at 11.13 by 1018 GMT.
The recent flaring up of infections had led to an increase in economic uncertainty and also hit currency markets, Olsen said.
“Small and medium-sized currencies, such as Norwegian crowns and the currencies of Australia and New Zealand, tend to weaken in the wake of this rising uncertainty,” he told a news conference.
The mainland economy, which excludes oil and gas output, is now expected to contract by 3.6% this year, slightly more than a June forecast of a 3.5% fall. In 2021, Norges Banks expects 3.7% growth, identical to its previous forecast. (Additional reporting by Nerijus Adomaitis in Oslo and Saikat Chatterjee in London; editing by Gwladys Fouche, Larry King)
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