Alone among peers, Norway hikes rates, sticks to plan for further increase

Credit: REUTERS/STAFF

Norway's central bank raised its main interest rate on Thursday, as expected, and maintained plans to hike again in the second half of the year and again in 2020 as domestic strength trumps a global economic slowdown.

By Nerijus Adomaitis and Victoria Klesty

OSLO, June 20 (Reuters) - Norway's central bank raised its main interest rate on Thursday, as expected, and maintained plans to hike again in the second half of the year and again in 2020 as domestic strength trumps a global economic slowdown.

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.

"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.

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.

Following the unanimous decision, Norway's crown currency rose 1% to trade at 9.6780 to the euro at 0802 GMT.

Norges Bank's new projections still showed a probability of a further rate hike in 2020, although the probability had decreased slightly since a March forecast.

(Writing by Terje Solsvik; editing by Gwladys Fouche and Editing by Kevin Liffey)

((terje.solsvik@thomsonreuters.com; +47 918 666 70; Reuters Messaging: terje.solsvik.thomsonreuters.com@reuters.net))

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