Norway central bank throwing doubt on September rate hike

Bloomberg

Norway’s central bank is growing increasingly uncertain about raising interest rates next month as global risks mount and monetary policy makers around the world unleash more stimulus.
Norges Bank left its key rate unchanged at 1.25%, as anticipated, and said its June rate outlook, which indicated a rate increase next month, was “little changed” even as it highlighted global risks.
“The global risk outlook entails greater uncertainty about policy rates going forward,” Governor Oystein Olsen said in a statement.
As other nations, including the US, are cutting rates again to cushion a global slowdown, Olsen is now hinting at reassessing his plans. Norwegian policy makers have raised rates three times since September last year to cap inflation in western Europe’s biggest oil producer. Booming oil investments and massive fiscal spending have pushed the economy close to capacity, with wages rising at a fast clip, unemployment below 4% and inflation holding above target.
Nevertheless, the country is not immune to the waning global momentum. The price of oil has plunged recently, promising to slow the economy. The Norwegian krone slid to near a record low earlier this month, providing some support for non-oil exporters.
The bank said that the upturn in the Norwegian economy “is continuing broadly as expected” even as underlying inflation “has been a little lower than projected.”
“Deepening trade tensions and heightened uncertainty surrounding the UK’s relationship with the EU may weigh on growth abroad and in Norway,” it said. “On the other hand, a weaker krone may contribute to higher inflation ahead.”
The change in tone in the statement opens up for Norges Bank delaying September’s tightening, according to economists.
“The September decision will clearly depend on whether the domestic economy is showing any weakness,” said Frank Jullum, chief economist at Danske Bank A/S. “As we expect growth to remain above trend, we still expect a rate hike in September.”
Kari Due-Andresen, chief economist in Oslo at Svenska Handelsbanken AB, said the new language indicates that “the central bank is uncertain if the policy rate will be hiked in September, but still believes December is an option.”
But the bank will likely revise down the rate path in September, she said.
“The central bank will probably prefer to keep a likelihood for another rate hike in the near-term (December or March), but we believe it eventually will have to call it off,” she said in a note. “The way we see it, the policy rate has reached its peak at 1.25% in this economic cycle.”
Thursday’s decision was a so-called interim policy meeting, meaning that the bank only released an executive summary without providing a monetary policy report or holding a press conference.
The next ordinary rate decision from Norges Bank is scheduled for Sept. 19.