Norway set for June interest rate hike in sign of breaking with global trend

Bloomberg

Norway’s central bank said it will probably raise interest rates in June, three months after the last increase, as policy makers break with a global trend and commit to tightening.
The economy of Western Europe’s biggest oil exporter is nearing full capacity as its labour market grows tighter and inflation creeps above Norges Bank’s target.
But with central bankers in Europe and the US taking a much more cautious approach, committing to higher interest rates doesn’t come without its risks when it comes to exchange rates and export markets. Policy makers in Norway kept the benchmark interest rate at 1%, as expected.
“The outlook and balance of risks continues to imply a gradual increase in the policy rate,” Norges Bank said. It acknowledged that the global outlook is looking less certain, but pointed to continued strength in the Norwegian economy.
The decision follows a rate hike in March, when Governor Oystein Olsen indicated another increase could come within the following half year. He said that the bank’s “current assessment of the outlook and balance of risks suggests that the policy rate will most likely be raised in June.”
In an interview after the decision in Oslo, Olsen said that “the outlook for the Norwegian economy is good.” He said he’s aware that, from the bank’s forecast, “one can infer that there will be two or three” rate increases in 2019.
The krone initially jumped on the news, before trading little changed against the euro. Kristoffer Kjaer Lomholt, a senior analyst at Danske Bank, said the fact that Norges Bank is now pointing to a June hike “more explicitly” comes after many in the market had already priced in such forward guidance. As a result, “the market impact should be limited,” he said.
“The uncertainty surrou-nding global developments persists,” the bank said.
“In Norway, capacity utilisation appears to be rising broadly as expected, while inflation has been slightly higher than projected.”
“Overall, new information indicates that the outlook for the policy rate for the period ahead is little changed since the March report.”