June 20, 2019 / 9:38 AM / 6 months ago

Alone among peers, Norway raises rates, eyes two more hikes

OSLO (Reuters) - Norway’s central bank raised its main interest rate on Thursday, as expected, and said it may hike again in September and in the first half of 2020 as domestic strength trumps a global economic slowdown, strengthening the crown currency.

People go about their day near Norway's central bank building in Oslo, Norway May 31, 2017. REUTERS/Ints Kalnins

The bank raised its key policy rate to 1.25% from 1.0%, in line with the forecast of 27 of 29 economists in a Reuters poll.

Following the unanimous decision, the crown rose 1% to trade at 9.6713 to the euro at 0915 GMT, and was up by 1.6% for the day against the dollar to 8.5634.

“Our current assessment of the outlook and balance of risks suggests that the policy rate will most likely be increased further in the course of 2019,” Governor Oeystein Olsen said in a statement.

The most likely timing of the next hike is September, and another increase could come before the summer of 2020, he later added at a news conference.

Norges Bank hiked rates last September for the first time since 2011 and raised them again in March against a backdrop of rising inflation and solid growth as Norway’s oil industry continues to increase investments.

The board’s aim of tightening policy stands in contrast to the U.S. Federal Reserve and the European Central Bank, both of which have signalled in recent days that they are contemplating monetary easing.

“Norges Bank lifted the rate path and suggest that the next hike most likely will come as soon as September,” economist Joachim Bernhardsen at Nordea Markets said in a note to clients.

“The new rate path reads 1.45% in Q4 2019, which gives an 80% probability of a September hike. The next hike will come by December for sure, according to the rate path,” he added.

Norges Bank’s new projections still showed a further rate hike was likely to come in 2020, although the probability had decreased slightly since a March forecast.

Companies’ capacity utilisation is now above the long-term average while unemployment is set to decline further from its decade-low 2.2%, Norges Bank said.

“If the economic outlook changes, the rate forecasts will also change,” Olsen told a news conference.

Norway’s core inflation, which excludes changes that stem from volatile energy prices and taxes, is expected to rise this year to 2.4% from 1.6% in 2018, above the central bank’s long-term target of 2.0%.

Writing by Terje Solsvik; editing by Gwladys Fouche and Kevin Liffey

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