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Norway Central Bank Keeps Rate Steady Again, Sees Hike In March

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Norway's central bank kept its base rate unchanged on Thursday, for a second consecutive policy session after raising it for the first time since 2011 in September, and signaled that the next hike will be in March next year.

The Executive Board kept the key policy rate unchanged at 0.75 percent, the Norges Bank said in a statement. The decision was in line with economists' expectations.

In September, the interest rate was hiked by a quarter basis points.

"Our current assessment of the outlook and the balance of risks suggest that the policy rate will most likely be raised in March 2019", Norges Bank Governor Oystein Olsen said.

The bank said raising the policy rate rapidly ahead could stifle the upturn in the economy and lead to higher unemployment and inflation that is too low.

"Uncertainty surrounding the effects of higher interest rates suggests a cautious approach to interest rate setting," the Norges Bank said.

"Overall, the outlook and the balance of risks imply a gradual interest rate increase in the years ahead."

While the policy rate forecast was little changed, the fall in oil prices and weaker global growth prospects imply a slightly slower rate rise than that seen in September, the bank noted.
Inflation is projected to remain close to target in the coming years, at the same time as unemployment remains low, the bank added.

Most economists expect the Norges Bank to raise interest rates twice next year, with some seeing the second one happening in September.

"But beyond that, we think that lower oil prices will prompt the Bank to end its tightening cycle sooner than investors expect, causing the krone to weaken," Capital Economics economist Jack Allen said.

The bank on Thursday also recommended an increase in the counter-cyclical capital buffer by 50 basis points to 2.5 percent from December 31.

"This indicates the NB remains concerned about the high indebtedness of Norwegian households but prefers using other tools than the interest rate to address this issue," ING economist Jonas Goltermann said.

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