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Norges Bank casts doubt on further tightening after next rate hike in 2019

Norway's central bank kept its policy rate unchanged and repeated its guidance of a third hike later this year, while also signaling uncertainty about the future path of monetary policy amid global trade tensions and concerns regarding Britain's impending exit from the European Union.

The near-term monetary policy outlook "is little changed" since June, when the Norges Bank raised its key rate by 0.25 percentage point to 1.25% and hinted at further tightening over the course of 2019, Governor Øystein Olsen said. The central bank's policymakers will again decide on interest rates in September, October and December.

However, "[t]he global risk outlook entails greater uncertainty about policy rates going forward," Olsen added. The central bank said deepening global trade tensions and heightened Brexit-related uncertainty may weigh on the Norwegian economy, while also noting that a weaker Norwegian krone may contribute to higher inflation in the future.

Erik Bruce, chief analyst at Nordea Bank, said Norges Bank's latest monetary statement still suggests that the next rate hike would come next month. But the central bank's warning about the global risk outlook "indicates that it feels less certain about the need for further hikes after September," he wrote in a note.

Danske Bank analysts also continue to expect a rate hike in September, while those from ING see a tightening in December as more likely but noted: "[U]ltimately it will all depend on how the global trade war evolves between now and then."

The Norwegian economy is growing in line with projections, with GDP rising 0.7% on a quarterly basis between March and May, the central bank said. The labor market appears to develop broadly as projected, while underlying inflation has slightly missed projections, with tax-adjusted prices of consumer products excluding energy rising only 2.2% in July, compared with expectations of a 2.4% increase.