* Keeps key policy rate at record low 0.0%
* Rates may rise in late 2022
* Had earlier said rates unlikely to rise until end-2023
* Cut three times since COVID-19 lockdown begun in March (Adds analysts, detail, bullet points)
OSLO, June 18 (Reuters) - Norway’s economic prospects have improved more than expected in recent weeks, the country’s central bank said on Thursday while announcing its key policy interest rate would be kept on hold for the time being, strengthening the crown currency.
Norges Bank has cut rates three times since March, slashing the cost of borrowing to zero from 1.5%, to cushion an economy reeling from the COVID-19 pandemic and the fall in the price of crude oil.
The central bank had expected to keep rates at 0% until the end of 2023, but it now expects an earlier increase, its updated forecasts showed.
“Since the monetary policy meeting in May, activity has picked up faster than expected,” the central bank said in a statement announcing the unanimous decision of its policy committee.
“The policy rate forecast implies a rate at the current level over the next couple of years, followed by a gradual rise as economic conditions normalise.”
The mainland economy, which excludes oil and gas output, is now expected to contract by 3.5% this year, better than a May forecast of 5.2%. In 2021, Norges Banks expects 3.7% growth compared with a 3.0% expansion seen last month.
“The new rate path was hawkish and signals at least two rate hikes by the end of 2023,” Nordea Markets said in a note to clients.
Norway has lifted many of the emergency restrictions imposed in March, but still keeps its borders closed to all but a few neighbouring countries, hurting its travel industry.
Western Europe’s top oil and gas producer is also suffering from a crash in crude prices as demand for fuel plunged amid the pandemic, although a tax cut enacted by Norway’s parliament will help alleviate the impact, Norges Bank said.
“Norges Bank surprises by signalling rates could go up in late 2022,” tweeted Kjersti Haugland, chief economist at DNB , Norway’s biggest bank.
The crown strengthened to 10.62 against the euro at 0826 GMT from 10.72 just before the 0800 GMT announcement. (Editing by Gwladys Fouche, Larry King)
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