Norwegian Central Bank Maintains High Interest Rates Amid Global Monetary Uncertainty

Norway's central bank, Norges Bank, held its interest rate at 4.50%, the highest in 16 years, with rate cuts now expected in 2025. Persistent inflation and currency weaknesses are key concerns. This decision follows similar moves by other central banks like the Federal Reserve and Bank of England.

Norway's central bank held its policy interest rate at a 16-year high of 4.50% on Thursday, as expected by analysts, and pushed back its prediction for a rate cut to 2025 from September in the latest blow to global monetary easing hopes. "If the economy evolves as currently envisaged, the policy rate will continue to lie at 4.5% to the end of the year, before gradually being reduced," Norges Bank Governor Ida Wolden Bache told a press conference.

The central bank's projections call for combined cuts in 2025 of 0.75 percentage point, Bache later told public broadcaster NRK. The Norwegian crown strengthened to trade at 11.29 against the euro at 0925 GMT, from 11.35 just before the announcement by the monetary policy committee.

Norges Bank had last month said a rate cut could be delayed beyond its previous prediction of September, but had declined to give a specific forecast amid persistent inflation and a weak Norwegian currency. Some other central banks including the U.S. Federal Reserve and the Bank of England are taking longer to cut rates than markets had expected as inflationary pressures linger.

Analysts were divided ahead of Thursday's announcement over when the Norges Bank would start to ease, with forecasts ranging from the third quarter of this year to the first quarter of 2025. Norges Bank now expects core consumer prices to rise by 4.0% this year, down from 4.1% seen in March. Core inflation stood at 4.1% year-on-year in May, down from a record 7.0% in mid-2023 but still exceeding the central bank's goal of 2.0%.

"We will do our job and do what is necessary to get inflation back to 2% because it is important for the confidence in the inflation target," Bache told the press conference. "And then we'll try to strike a balance between getting inflation back to the target quickly and to avoid a too sharp slowdown in the economy," she added.

The central bank predicted the policy rate would average 4.5% in 2024 and 4.1% in 2025, up from March forecasts of 4.4% and 3.9%, respectively, reflecting inflation fears and currency weakness. The rate projection for 2026 was raised to 3.4% from 3.3%, while the 2027 forecast dropped to 2.8% from 2.9%, Norges Bank's monetary policy report showed.

"Policymakers at Norges Bank are more concerned than their counterparts elsewhere that lower interest rates will cause the currency to weaken, adding to price pressures," Capital Economics economist Jack Allen-Reynolds said in a research note. The Swiss National Bank earlier on Thursday cut its policy rate by 25 basis points to 1.25%, as expected by analysts.

The Federal Reserve last week kept interest rates steady and pushed out the start of rate cuts to perhaps as late as December, while the European Central Bank, which cut rates earlier this month, is expected to slowly reduce the cost of borrowing in the euro zone.

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