The Central Bank of Norway left its policy interest rate unchanged at a 17-year high of 4.50% on Thursday, in line with analysts' expectations. The bank affirmed its intention to begin reducing borrowing costs in March, aligning with predictions that Norway's monetary policy will start to converge with that of Western central banks due to slowing growth and weakening inflation prospects.
Norges Bank Governor Ida Wolden Bache stated that the policy rate is anticipated to be decreased in March, marking the first rate cut since May 2020. Plans were outlined for three rate cuts in 2025, aiming to reach 3.75% by year-end, with a revised forecast set to be released in March.
Concerns about potential increases in international trade barriers were voiced by Norwegian central bankers, highlighting the impact on global growth and price prospects. Market expectations foresee a quarter-percentage point rate cut to 4.25% in March, with some analysts foreseeing a larger 50 basis point reduction to 4.00%.
Chief economist at the Confederation of Norwegian Businesses (NHO), Oeystein Doerum, noted that the recent decision and the upcoming rate cut align with projections, shifting the focus on the rate trajectory and future developments.
The central bank underscored the ongoing need for a restrained monetary policy to stabilize inflation around the 2% target, emphasizing that the time for a policy adjustment is approaching. Although core inflation dipped to 2.7% year on year in December, slightly below expectations, it remains above the central bank's target, with business cost increases expected to elevate inflationary pressures ahead.