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Norway Holds Rates at Zero, but Hike Draws Closer

OSLO, Dec 17 (Reuters) - Norway’s central bank kept its policy interest rate at a record-low zero percent on Thursday, as expected, while warning that a rate increase may come earlier than it had expected as the global economy recovers from the COVID-19 pandemic.

Norges Bank said it had pencilled in an increase for the second quarter of 2022, six months earlier than its previous prediction but matching forecasts by a Reuters poll of economists.

“The sharp economic downturn and considerable uncertainty surrounding the outlook suggest keeping the policy rate on hold until there are clear signs that economic conditions are normalising,” Governor Oeystein Olsen said in a statement.

“The policy rate forecast implies a rate at the current level for over a year ahead, followed by a gradual rise from the first half of 2022 as activity approaches a normal level,” Norges Bank said.

The central bank’s detailed forecasts showed that the probability of a rate hike in the April-June quarter of 2022 was well above 50%.

“This is a message on the hawkish side,” Nordea Chief Economist Kjetil Olsen said. “They are bringing a potential rate hike forward by about half a year as the vaccination rollout could lead to a faster recovery.”.

Norway’s currency, the crown, strengthened to 10.49 against the euro at 0908 GMT, up 0.9% for the day.

A rate increase within the next 18 months could make Norges Bank first among the G10 central banks to raise the cost of borrowing.

“By speaking about possible rate hike and bringing this possibility even more forward, Norges Bank stands out among other central banks which are still discussing how to stimulate the economy,” Nordea’s Kjetil Olsen said.

While Norges Bank in September predicted that its policy rate would rise to 0.5% by the end of 2023, it now says it could reach 1% by the same time.

(Writing by Terje Solsvik; editing by Gwladys Fouche, Larry King)

Source: Reuters


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