Analysts see Norway c.bank on hold despite Fed cut

OSLO (Reuters) - Norway is likely to keep interest rates steady at 5.25 percent on Wednesday, despite a 75 basis points cut by the U.S. Federal Reserve, though the Fed move may reduce Norges Bank's scope for tightening later, analysts said.

All six economists in a Reuters survey, taken after the Fed surprised markets by slashing the federal funds rate to 3.50 percent on Tuesday, said they still expected Norway's central bank to keep its main rate unchanged on Wednesday, as they had forecast last week.

"I still expect Norges Bank to stay on hold tomorrow, and a rate cut is certainly not on the agenda (in Norway)," Deutsche Bank economist Klaus Papenbrock said.

"The Norwegian economy is still too strong," said Papenbrock, who added that he believes the Norwegian tightening cycle, which began from a record low 1.75 percent in mid-2005, is now over and there will be no more increases.

The Norwegian economy has seen a five-year economic boom, driven by soaring prices for Norway's oil and gas exports and brisk domestic demand.

Norges Bank said in December, when it bumped rates up to 5.25 percent, that the domestic economy had been stronger than expected but uncertainty abroad had grown, signaling it would pause in its tightening though possibly raise once more in 2008.

"Domestic figures, such as latest inflation, retail sales and employment figures, are strong -- stronger than expected," Nordea Markets senior economist Erik Bruce said. "I think they will keep rates unchanged but certainly stress the uncertainty abroad."

All 11 economists in a Reuters poll last week predicted no change at Norges Bank's January 23 meeting, though five of them forecast one or two more rate increases this year starting in the second quarter.

Not all those economists could be reached on Tuesday after the Fed cut.

The chances of further tightening by Norges Bank have been reduced by the Fed cut, analysts said.

"The likelihood of one more increase from Norges Bank has been reduced by this," DnB NOR Markets chief economist Oystein Doerum said. "We will discuss our prognoses, but we still expect one more increase."

"The Fed is cutting to try to prevent a hard landing. Both we and Norges Bank expect a soft landing," Doerum said.

Handelsbanken economist Shakeb Syed also said he was sticking to his forecast of no change on Wednesday, but added: "After this, we think that Norges Bank tomorrow will emphasize a lower likelihood of a rate rise in March."

And SEB Norge's chief economist Stein Bruun, who had earlier estimated a 50 percent chance of a rise to 5.50 percent by the end of the second quarter, end of the third quarter or by end-2008, said: "There will probably not be any more increases from Norges Bank after this."

Participants in the survey: Deutsche Bank, DnB NOR Markets, First Securities, Handelsbanken, Nordea Markets, SEB Norge.

* What: Norway central bank meets on interest rates

* When: Wednesday, January 23, 8:00 a.m. EST

* Economists surveyed by Reuters expect Norges Bank to hold its key rate steady at 5.25 percent