UPDATE 2-Norway holds rates at zero, warns of hike this year

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OSLO, March 18 (Reuters) - Norway’s central bank left its key interest rate unchanged at a record-low 0.0% on Thursday, as expected, and shifted its forward guidance to signal that a rate increase may follow in the second half of this year amid signs of economic recovery.

Norges Bank had previously signalled that rates would start to rise in the early part of 2022, but many economists had anticipated a shift in guidance towards a hike in 2021.

“In the committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised in the latter half of 2021,” Norges Bank said in a statement. “This implies a somewhat faster rate rise than projected in December.”

Norway’s currency, the crown, strengthened to 10.0431 against the euro at 0906 GMT from 10.0956 just before the 0900 GMT announcement.

Norway cut rates three times last year to combat the impact of the COVID-19 pandemic. A hike this year could make Norges Bank the first among the so-called G10 central banks to raise the cost of borrowing.

“The new rate path – Norges Bank’s own rate forecast – signals a first rate hike in December with some probability for it to occur in September,” brokers Nordea Markets said.

The central bank now predicts the policy rate will average 0.5% in 2022, higher than the 0.3% it had forecast three months ago, and rise further in 2023 to average 1.0% for the year, up from 0.8% expected previously.

The Bank of England is also due to announce its latest monetary policy decision on Thursday.

On Wednesday, the U.S. Federal Reserve repeated a pledge to keep its target interest rate near zero for years to come, even though growth and inflation are expected to jump in 2021. (Reporting by Terje Solsvik, Victoria Klesty and Nerijus Adomaitis; editing by Gwladys Fouche, Larry King)