POLL-Hawkish Norway to press on with rate hikes after August pause

Thanks, Norway's central bank is expected to keep interest rates on hold on Aug. 15 while signaling that a hike will likely follow later this year amid solid growth, above-target inflation, and currency weakness, a Reuters poll of economists showed. Defying a global economic slowdown, Norway is headed for its fastest expansion in seven years in 2019 thanks to an investment boom in its oil and gas industry, and rising government spending.

Waging an increasingly lonely campaign, Norges Bank has raised rates three times since September and warned that further hikes may follow next month and in the first half of 2020, even as other central banks shifted to dovish positions. The survey of 31 economists taken on Aug. 7-9 unanimously predicted Norway's policy rate would stay at 1.25% at this week's board meeting.

A change in rates at the August meeting would have been unusual. While Norges Bank reviews monetary policy eight times per year, it only revises economic forecasts four times, in March, June, September, and December. Any changes to interest rates normally coincide with the latter meetings.

Of the 29 economists who gave longer-term forecasts, a narrow majority of 15 predicted that rates will rise by a quarter percentage point in September, while seven said a hike would probably come in the fourth quarter instead. Only five predicted that Norges Bank will stop raising rates.

The Norwegian economy is set to grow by 2.5% this year, the most rapid expansion since 2012, according to a June forecast by Statistics Norway. Core inflation in July stood at 2.2% year-on-year, exceeding the central bank's target of 2.0%. The intermediary announcements, such as the one in August, come with shorter statements that signal the board's intent for the following meeting, and analysts are now asking how strong those signals will be.

Norway's crown currency has weakened in the last year against a trade-weighted basket of rivals, contrary to the central bank's prediction, which has stoked inflation and boosted the profits of exporters. The U.S. Federal Reserve last month reduced its key rate by a quarter of a percentage point and the European Central Bank all but pledged it too will soon cut. The Bank of Japan has also hinted at more easing.

Australia, New Zealand, South Korea, and Iceland are among other countries that have recently cut rates and may soon do so again, as could the Swiss National Bank. [nL4 N2532UI] In Britain and Sweden, investors are increasingly skeptical of the Bank of England and the Riksbank's stated intentions of monetary tightening. 

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