Norges Bank governor Ida Wolden Bache
(Bloomberg) — Norway’s central bank kept borrowing costs steady after a surprise cut in June and reiterated its plan to extend “cautious” easing later this year.
Norges Bank kept the key deposit rate at 4.25% on Thursday — matching the forecast of all economists surveyed by Bloomberg. It repeated that the key rate would be lowered further “in the course of 2025,” with no new projections or interest-rate outlook produced for the interim meeting.
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“With a cautious normalization of the policy rate we will get inflation back to target without causing a large increase in unemployment,” Governor Ida Wolden Bache said in an interview in Arendal, southern Norway.
Norges Bank has aligned more with its developed-world peers since June, when it pivoted earlier than expected to reducing restraint on the energy-exporting economy from the highest level in more than 16 years.
With core inflation remaining stubbornly high and the krone giving up recent gains, the bar was seen as too high for Norwegian officials to resume rate reductions already this month. The central bank said recent developments were in line with its outlook in June when policymakers predicted as many as two more rate cuts this year and further easing to a terminal level of 3% “towards the end of 2028.”
“Although September remains the main expectation, it is not a done deal,” Karine Alsvik Nelson, senior economist in Norway at Svenska Handelsbanken AB, said in a note. “We expect the key policy rate to be cut in September, but remain doubtful about the likelihood of two more cuts this year.”
The krone, the third-worst performer over the last month among G-10 currencies, erased most of its earlier gains, trading about 0.1% higher at 11.9195 versus the euro at 1:07 p.m. in Oslo.
The currency “has been slightly on the weak side since our June forecast,” Wolden Bache said. “We had expected some of that because the interest rate decision was surprising, and we also saw a further depreciation coinciding with the decline in the oil price.”
Traders in overnight swaps now price in 23 basis points of rate cuts at September’s meeting, with 44 basis points of loosening seen by year-end.
Norway’s move comes as the Riksbank in neighboring Sweden is also seen keeping rates on hold next week while signaling more cutting to come. The Bank of England decreased its benchmark rate by 25 basis points to 4% this month, while the European Central Bank is expected to wait until at least December to deliver another reduction.
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“The committee continues to emphasize the ‘cautious normalization of monetary policy,’ citing both upside and downside risks to the rate path and the high level of uncertainty,” Rory Fennessy, Senior Economist with Oxford Economics, said in an emailed comment. “If the economy is shown to have held up stronger than expected in the second quarter, a pause in September becomes more likely.”
–With assistance from Joel Rinneby, Harumi Ichikura, Stephen Treloar and Kari Lundgren.
(Updates with comments from governor, analyst from third paragraph.)
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