OSLO, June 21 (Reuters) - Norway’s central bank kept its key policy interest rate unchanged at a record low 0.50 percent on Thursday as expected and reiterated plans for a September increase, in line with its forecast from March.
“The outlook for the Norwegian economy suggests that it will soon be appropriate to raise the key policy rate,” the central bank said in a statement.
“The Executive Board’s current assessment of the outlook and balance of risks suggests that the key policy rate will most likely be raised in September 2018.”
A policy tightening, Norges Bank’s first in seven years, would come despite weaker-than-expected inflation in recent months, as higher oil prices, a rebound in the housing market and accelerating growth drive the need for higher rates.
Norway’s currency, the crown, strengthened to an eight-month high against the euro after the bank’s decision.
Economists polled by Reuters had predicted the bank would leave the deposit rate unchanged for the time being, and raise it in September.
“Norges Bank is parting from the Swedish Riksbank despite inflation that has been below the central bank’s target,” said Stein Bruun, chief economist at Arctic Securities.
“Norges Bank is on track to normalise monetary policy ... they no longer see the need for expansionary policy. Now it’s more likely that we will see two interest rate hikes next year, instead of one.”
Hit by a plunge in the price of oil, Norway’s main export, from 2014 to 2016, the Norwegian economy has since recovered alongside oil prices. Unemployment fell to a nine-year low in May.
Norges Bank now predicts 2018 growth in the mainland economy of 2.6 percent, up from 1.9 percent in 2017, compared with a March forecast of 2.6 percent. Its forecast for 2019 was raised to 2.3 percent from 2.0 percent.
“The rate path has been increased while we expected the decline. They seem to be even more determined to increase interest rates in the future,” said DNB Markets senior economist Kyrre Aamdal.
“They put more weight on Norwegian economic development, and (are) not so much concerned about lower inflation in the past few months.”
“We expect two rate hikes in March and September next year, and that’s pretty much in line with the central bank’s rate path.”
Reporting by Camilla Knudsen, Nerijus Adomaitis, Gwladys Fouche and Terje Solsvik, Editing by Catherine Evans