2019.06.2010:30:00UTC+00Norway Central Bank To Continue Raising Rates

Norway's central bank raised its key interest rate in June, as it guided earlier, and signaled that more hikes are likely this year, citing stronger-than-expected growth and inflation hovering near target.

The Executive Board decided to raise the policy rate by 0.25 percentage point to 1.25 percent, the Norges Bank said Thursday.

The bank had left the rate unchanged in May after hiking it by a quarter-point in March. The rate was raised for the first time since 2011 in September last year.

"Our current assessment of the outlook and balance of risks suggests that the policy rate will most likely be increased further in the course of 2019", Norges Bank Governor Oystein Olsen said.

Trade tensions are a substantial source of uncertainty, the bank said. "Uncertainty surrounding the effects of monetary policy suggests a cautious approach to interest rate setting," the bank added. Further, the bank said the policy rate forecast indicates a slightly faster rate rise in the coming year than projected in March, but the policy rate path is little changed further out.

The bank expects the upturn in the Norwegian economy to be a little stronger in the coming year than projected earlier and inflation to remain close to the target. "The message is clearly hawkish as a strong domestic business cycle suggests a further front-loading of monetary tightening despite elevated international uncertainty at present," Danske Bank analysts said. They added that the rate path suggests a 70-80 percent change of a rate hike in September and a roughly 70 percent likelihood of a second additional hike, most likely in 2020.

Norges Bank is among the few central banks who are signaling more tightening, while most others including the US Federal Reserve and the European Central Bank have revealed an easing bias in the backdrop of the slowdown in the global economy.