September 21, 2017 / 9:53 AM / in a year

Norway shortens path to rate hike, but still more than year away

OSLO (Reuters) - Norway’s central bank kept its key policy rate unchanged at 0.50 percent on Thursday, but said a rise was likely to come earlier than previously expected, albeit still more than a year away.

A woman walks past Norway's central bank building in Oslo, Norway May 31, 2017. REUTERS/Ints Kalnins

It signaled in a report published with the rate decision that a rate hike was now likely to come in the first half of 2019, while it had earlier said a tightening would not happen until late in that same year.

“The key policy rate is forecast to be 0.5 percent over the coming year, rising gradually thereafter,” Norges Bank said in a statement.

Governor Oeystein Olsen told a news conference he expected a first rate hike “well into 2019”.

All 15 economists polled by Reuters had expected rates to remain unchanged.

In June the central bank removed its easing bias on rates, noting the economy was recovering from a two-year slump as the price of crude oil, Norway’s main export, gradually rose from multi-year lows.

“The forecast is little changed on the June Report, but is a little higher toward the end of the forecast period,” the central bank said in a statement.

Norway's currency, the crown, strengthened against both the euro EURNOK= and the dollar NOK= after the bank's decision, which was unanimous and came a day after the U.S. Federal Reserve left its own rates unchanged.

“Stronger outlook for the Norwegian and the international economy makes Norges Bank raise its rate path! Sees first hike early 2019,” DNB Chief Economist Kjersti Haugland tweeted.

The Norwegian economy is improving with unemployment, which a year ago hit a 20-year high of 5 percent, has since declined to 4.3 percent, while consumer confidence is at a 10-year high.

The bank’s new rate path now implies a 30 percent probability of a rate hike as early as September of 2018, Handelsbanken Chief Economist Kari Due-Andresen wrote in a note to clients.

“First hike fully priced in by June 2019 — three more hikes foreseen in 2020,” she added.

On the state of the Norwegian housing market, which had been cooling after strong growth in recent years, the central bank said that the ongoing “correction” may lower the risk of an abrupt and more pronounced decline further out.

“I read this as a sign of the bank’s confidence in the property market,” said Harald Magnus Andreassen, chief economist at Sparebank 1 Markets.

“The bank is painting a stronger picture of the economy, even though the housing market is slowing down.”

Additional reporting by Terje Solsvik, Ole Petter Skonnord, Nerijus Adomaitis, Henrik Stolen, writing by Gwladys Fouche, editing by Jeremy Gaunt

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