* Keeps rates on hold at 1.5 pct
* Sees rate hike next summer vs end 2014
* Cut 2013 mainland GDP growth to 1.75 percent from 2.5 pct
* Raises 2013, 2014 inflation forecast
By Balazs Koranyi and Camilla Knudsen
OSLO, Sept 19 Norway's central bank said on
Thursday it will start hiking interest rates earlier than it had
predicted, but it struck a dovish note by stressing the likely
limited extent of increases.
Trying to reconcile conflicting pressures of rising
inflation and a slow economy, the central bank said it would
bring forward a rate rise to next summer or even sooner, well
ahead of previous guidance for the end of 2014.
But any more hikes after that would be gradual and there is
likely to be just one more 25 basis point move by the summer of
2015 as the economy could not handle too rapid tightening, it
The tone of the central bank's message was less hawkish than
some had expected as it described economic growth as moderate,
the inflation jump as temporary and the housing market as
The bank as expected kept rates on hold at 1.5 percent - the
level they have been at since a 25 basis point cut in March last
"In June we thought it was more likely that rates would go
down rather than up. Now we think it's most likely that they
will be unchanged until next summer, then rise gradually,"
central bank Deputy Governor Jan Qvigstad said.
The bank has been in a dilemma all summer after a string of
big data surprises pulled it in opposing directions.
Growth in the economy, Europe's best last year thanks to a
booming oil sector, came close to a halt in the second quarter,
supporting calls for a rate cut. The weakening crown, an
overheating housing market, and rising food and energy prices
all added pressure for higher rates.
Core inflation at 2.5 percent is running a full percentage
point above the central bank's June forecast, hitting the bank's
target rate years before the bank said it would.
"They were not quite as aggressively as many in the market
had expected after inflation figures," Frank Jullum, a chief
economist at Danske Bank said. "A March rate hike is not fully
priced in for March so it could come between March and June."
The crown currency initially weakened on the
decision, then settled about a quarter percent stronger.
The bank was cautious about future hikes as growth is
expected to slow more than markets had predicted, and the
overheating housing market, the bank's top concern over the past
several years, is cooling more than earlier predicted.
"The signs of weakness had a much stronger impact on Norges
Bank's view on the economy looking ahead," Nordea economist Erik
The economy weathered Europe's crisis relatively unharmed
thanks to record high oil investments but weak overseas markets,
stagnating competitiveness, and sharply lower consumer spending
put the brakes on growth.
The bank lowered its 2013 forecast for growth on the
mainland - excluding the volatile offshore sector - to 1.75
percent from 2.5 percent, below analysts' expectation for a cut
to 2 percent. It also lowered its 2014 growth forecast to 2.25
from 2.75 percent.
But it also cautioned about the property market, saying that
housing debt is still rising faster than incomes and there was
risk that the price falls could trigger or amplify an economic
"We agree that the rise in inflation in large part is
temporary, and that there are reasons to not react markedly on
the recent inflation numbers," DNB economist Kyrre Aamdal said.
"We expect that the policy rate will be raised in the autumn