Norway’s central bank set to raise interest rates soon

Bloomberg

The case is strengthening for Norwegian central bank policy makers to soon raise interest rates for the first time in seven years.
Economic growth is accelerating, oil prices are up, unemployment is nearing rock-bottom levels and central banks around the world are starting to withdraw stimulus. At the same time, the government this month decided to lower the inflation target, opening for a faster tightening of policy in the short run.
This will likely prompt policy makers in Oslo to signal an earlier rate increase than the current December forecast when they reveal their next rate decision. All 24 economists surveyed by Blo-omberg say the bank will keep benc- hmark rate at a record low of 0.5%, where it has been since March 2016.
“It’s more likely that rates will be hiked before December than after,” said Kjersti Haugland, chief economist at DNB ASA, Norway’s biggest bank. “We see a fifty-fifty probability that the rate path this time will indicate a hike already in September.” The view was shared by SEB AB chief strategist Erica Blomgren, who says the bank will “signal with 100 percent certainty that a rate hike will occur in 2018 and are tilting toward a September lift-off.”
Boosted by record fiscal and monetary stimulus, Norway’s economy has survived a crash in its oil industry. The government revised down unemployment forecasts while predicting stronger exports and a revival in oil investments. The upswing plays into the hands of Governor Oystein Olsen, who has only been a reluctant rate cutter amid concern over a buildup in consumer debt after years of soaring housing prices.
But even with a lower inflation target of 2 percent now, anemic price growth could be the one thing holding policy makers back. Underlying inflation was at just 1.4 percent last month, below the bank’s own 1.7 percent estimate.
Here are some other key factors the bank is looking at: After soaring during the downturn as more than 50,000 oil jobs were lost, registered unemployment has now slid to 2.5 percent and the $400 billion economy is adding jobs at a fast clip.