Norges Bank keeps interest rate unchanged at 0.75 pct, likely to hike in March 2019

The Norges Bank’s Executive Board kept the key policy rate on hold at 0.75 percent today after hiking by 25 basis points at the September meeting. Today’s decision was unanimous.

The central bank has advised the Ministry of Finance to raise the countercyclical capital buffer to 2.5 percent, effective from 31 December 2019. Consistent with Norges Bank’s advice, the Ministry of Finance decided to raise the countercyclical capital buffer to 2.5 percent.

The current assessment of the outlook and balance of risks by the Executive Board implies that the policy rate will most likely be hiked in March 2019, noted DNB Markets in a research report.

In the first quarter of 2019 the rate path was lowered by 4bp. Moreover, the rate path was lowered by 2-15bp. The new path indicates a full rate hike to 1 percent in March 2019 and a new hike in December 2019. Moreover, the path indicates three more hikes in total in 2020 and 2021.

The interest rate account indicates that the oil price and foreign factors added to a lower rate path. In the first quarter of 2019 judgmental assessments also pulled down the rate path. Demand, prices and wages and the exchange rate added to a higher rate path.

Norges Bank revised down the GDP growth for this year marginally to 2.4 percent from 2.5 percent. The central bank also revised down next year’s growth forecast to 2.3 percent. For 2020 and 2021, the Norges Bank expects growth to come in at 1.6 percent and 1.4 percent, respectively. Core rate forecasts were hiked to 2 percent in 2019, 1.9 percent in 2020 and 1.9 percent in 2021.

Annual wage growth forecasts were downwardly revised by 0.1 percentage points to 2.9 percent in 2018 and kept unchanged at 3.2 percent in 2019. The central bank expects wage growth to come in at 3.5 percent and 3.8 percent in 2020 and 2021, respectively.