BRUSSELS (MNI) – Fresh Norwegian data released on Thursday
increases the probability that the country’s central bank will leave its
key policy rate on hold at 1.75% at its meeting next week, economists
said, though they thought it was still a very close call.

The Norges Bank was one of the first central bank’s in the world to
begin a hiking cycle, as its economy weathered the financial crisis
better than most. It has increased rates so far to 1.75% from an
all-time low of 1.25%.

At its last meeting March 24, the central bank kept the rate on
hold but the accompanying monetary policy report showed a rate hike
before the middle of the year was likely, implying a rise to 2.0% in
either May or June.

On May 5, Norges Bank policymakers will meet again and make the
decision whether to leave rates on hold or raise them 25 basis points.

Data released Thursday added support to the case for leaving rates
on hold, with retail sales coming in weaker than expected and an
activity and employment report coming in line with the Norges Bank’s
outlook, analysts at SEK in Stockholm said.

Norway’s March retail sales – announced by statistics Norway
Thursday – were flat on a month-on-month seasonally adjusted basis,
lower than an increase of 0.5% predicted by economists.

A separately announced survey of private sector contacts in the
period April 19-21, concluded that “developments in both output and
employment are generally in line with expectations.”

“All in all, today’s data increase the probability that Norges Bank
will remain on hold next week but it’s a really close call,” said Erica
Blomgren, an economist at SEK Bank.

Further bolstering the case for leaving rates on hold is the
current strength of the country’s currency, the Norwegian krone.

The krone has added 5% against the euro since the start of this
year, mainly because concerns about the Eurozone recovery and the impact
of the Greece crisis have driven the euro down. But the resulting impact
on the krone could keep the Norges Bank on hold for longer than

“NOK-developments ahead of the May meeting should be essential for
the rate decision,” economists at Citi said in a note to investors.

“We are slightly concerned that the NOK is gaining strength on the
Greek crisis as this could fuel additional NOK-rallies. This would
intensify the problems in the Norwegian industry, and could postpone the
May hike,” they said.

All eyes are now on next week’s policy meeting and the accompanying
statement, and any clues as to the future rate path.

–Brussels: 0032 487 (0) 32 803 665,

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