* Central bank keeps main rate at 0.50 pct
* Says rate likely to remain at today's level in the years
* Still sees higher probability of a cut than a hike
* Government imposes tougher capital requirement on banks
(Adds quotes, tighter capital requirement for banks)
By Camilla Knudsen
OSLO, Dec 15 Norway's central bank kept its key
interest steady at 0.5 percent on Thursday and said the cost of
borrowing will probably remain at this level in the years ahead,
although it warned that a boom in house prices could hurt the
economy in the long run.
Rising housing prices and worries over household debt levels
are among the main reasons why the central bank is cautious
about further easing, despite lower-than-expected inflation, low
economic growth and higher unemployment amid weak oil prices.
"Our current assessment of the outlook suggests that the key
policy rate will most likely remain at today's level in the
period ahead," Norges Bank Governor Oeystein Olsen said.
However, the bank kept an easing bias from September as it
said there was a slightly higher probability of a rate decrease
than an increase in the year ahead.
"Norges Bank kept a rate path with an easing bias, but
lifted it in the front and in the back end," brokerage Nordea
"This reflects a central bank concerned about accelerating
house prices and financial stability and cements the impression
of reluctance to cut rates," it added.
All but one of the 16 economists polled by Reuters expected
an unchanged deposit rate at the current record-low.
RAPIDLY RISING HOUSING PRICES
The central bank has reduced its cost of borrowing from 1.5
percent in late-2014 in a bid to balance the requirements of an
economy that has slowed as oil prices plunged with the need to
prevent an already red-hot property market from overheating.
"The rapid rise in house prices and household debt has
increased the risk of a sharp fall in demand further out," said
the central bank.
"A lower key policy rate increases the risk of a further
acceleration in house price inflation and debt accumulation".
House prices rose roughly 12 percent this year, driving up
the consumer debt-to-income ratio and feeding fears that the
economy may suffer longer term.
Norway's household debt to income stood at 222 percent in
2015, according to OECD data, among the highest in Europe.
"Norges Bank is afraid, very afraid, of financial
imbalances," Sparebanken Vest chief economist Joergen
To help reign in housing prices and household debt, the
Finance Ministry said in a statement it would raise capital
buffer requirements for banks to 2.0 percent from 1.5 percent,
following the central bank's advice.
The higher buffer makes banks more resilient to downturns,
while potentially limiting their lending growth and abilities to
pay dividends to owners.
In a separate bid to dampen the rampant growth in housing
prices, the ministry also announced tighter mortgage regulations
(Additional reporting by Gwladys Fouche and Ole Petter
Skonnord, writing by Stine Jacobsen, editing by Terje