Norway to keep rates on hold this week, may hike in December: Reuters poll

OSLO (Reuters) – Norway’s central bank is expected to keep its key policy interest rate on hold this week but could hike borrowing costs again by the end of the year to help rein in inflation and support the country’s faltering currency, a Reuters poll showed.

Norges Bank’s monetary policy committee in September raised the benchmark rate by 25 basis points (bps) to 4.25%, a 15-year high, and said it would “likely” hike one more time in December if the economy developed broadly as expected.

All 29 economists polled in the Oct. 25-30 period predicted Norges Bank would announce on Thursday an unchanged rate, but many also acknowledged they were uncertain over what would happen next.

For the December meeting, the final one of the year, 16 economists predicted a hike to a peak rate of 4.50%, while 12 of those polled expected no change from the current 4.25%. One economist forecast a rate of 4.75%.

Norwegian consumer prices have fallen faster than expected in recent months, below the central bank’s forecasts as well as those of analysts, but they still exceed the official 2.0% inflation target.

Headline inflation stood at 3.3% year-on-year in September, down from 4.8% year-on-year in August, as food and energy costs fell, and was well below Norges Bank’s forecast of 4.2%. Core inflation also declined more than predicted.

On the other hand, the Norwegian crown currency has resumed a weakening trend against the euro and the dollar, causing concern this may again stoke inflation as imports become more expensive.

October and November inflation, as well as gross domestic product for the third quarter, which will all be released ahead of the December rate decision, could eventually determine the next move, several analysts said.

The central bank would likely spell out the uncertainty in its statement this week, brokers DNB Markets said.

“We expect Norges Bank to stress that the policy decision in December will be data dependent and reiterate the guiding for a possible rate hike,” DNB wrote in a note to clients.

The European Central Bank kept its policy on hold last week, as expected, maintaining the benchmark rate at a record 4.0% and hinted at a steady policy for the time being.

The Bank of England will also announce its latest rate decision on Thursday, and is expected to stay on hold.

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