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UPDATE 2-Norway's central bank keeps rates on hold, removes easing bias
June 22, 2017 / 8:27 AM / 6 months ago

UPDATE 2-Norway's central bank keeps rates on hold, removes easing bias

* 2017, 2018 view for key policy rate is now 0.5 pct

* March forecast was 0.4 pct

* Rate decision was unanimous

* Chances of rate cut or rate rise now equal -economists (Adds detail)

By Camilla Knudsen

OSLO, June 22 (Reuters) - Norway’s central bank kept its key interest rate unchanged at 0.50 percent on Thursday, saying the economy continues to show signs of recovery after a two-year slump and rates remain low or negative among the country’s trading partners.

The bank added a rate cut was no longer likely and that rates would probably begin to rise in 2019. It had previously said rates were more likely to fall than to increase in the short term.

All 14 economists polled by Reuters had predicted the bank would leave the deposit rate unchanged.

The bank said it expected the key policy rate would be 0.5 percent in 2017 and 2018, compared with a March forecast of 0.4 percent.

“The forecast is little changed on the March Report, but is a little higher in 2017 and 2018, and a little lower towards the end of the forecast horizon,” the central bank said in a statement on Thursday.

Still, the bank said it expected the key policy rate would stay at its current level in the period ahead.

Oil producer Norway has seen economic growth slow and unemployment rise following the drop in crude prices since mid-2014, but the central bank and the government both expect a gradual recovery.

“It was as we expected and actually moving from easing bias to neutral bias on the short term,” said Frank Jullum, chief economist at Danske Bank.

“They still expect the first hike to be at the end of 2019 or 2020. I think the first hike will be much sooner, at late 2018.”

Norway’s currency, the crown, strengthened against the euro and the dollar after the bank’s decision, which was unanimous.

“We were a bit unsure if they would remove the downside bias, but they did and now it’s as likely with a rate hike as a rate cut,” said Nordea Markets chief economist Kjetil Olsen.

“This indicates that we definitely have seen the rate bottom and that the first rate hike is closer now.” (Additional reporting by Ole Petter Skonnord, Terje Solsvik, Lefteris Karagiannopoulos, Joachim Dagenborg, writing by Gwladys Fouche, editing by Larry King)

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