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2025-09-18 17:02:36
Unexpected Rate Cut! Norway's Central Bank Shifts Strategy but Expresses Caution, Diverging on Future Path. (1) At its monetary policy meeting on Thursday, the Norwegian Central Bank announced a 25 basis point cut in its key policy rate to 4%. The rate cut surprised the market, as a Wall Street Journal survey showed that most economists expected the central bank to keep rates unchanged. This rate cut follows a June cut from 4.5% to 4.25% and is intended to support economic activity. (2) Despite the rate cut, the Norwegian Central Bank signaled a slower pace of future rate cuts. Governor Aida Walden-Bakke noted that data released since June indicates a slight reduction in economic slack and that inflation may remain elevated for longer than previously forecast. Norway's economic growth has been better than expected this year, unemployment remains low, and inflation remains well above its 2% target. Core inflation slowed to 2.8% in the spring but then rebounded to 3.1% in June, July, and August. ⑶ Buck stated that the work of returning inflation to target is not yet complete, so future policy rate cuts may not be as rapid as envisioned before the summer. The central bank also mentioned in its statement that further policy easing may be needed over the next 12 months to boost economic growth, but the pace of easing will be slower than previously anticipated. Policymakers now expect to cut interest rates annually over the next three years, bringing them to just above 3% by the end of 2028. This slows the pace compared to the previous forecast of around 3% by the end of 2028. ⑷ Despite this, the Norwegian Central Bank still expects inflation to fall close to its 2% target by 2028. This move by the Norwegian Central Bank reflects its cautious approach to balancing supporting economic growth with curbing inflation.
