Although the time to ease is drawing near, Norges Bank maintained its benchmark rate on Thursday and indicated that the policy rate will remain at its current level until the end of the year.
Governor Ida Bache’s Monetary Policy and Financial Stability Committee determined to maintain the policy rate at 4.50 percent.
“The policy rate will likely be kept at 4.5 percent to the end of the year,” Bache said. “We believe that there is a need to keep the policy rate at today’s level for a period ahead but that the time to ease monetary policy is approaching,” the governor added.
According to today’s policy rate prediction, the interest rate will begin to decline gradually in the first quarter of 2025. While the prediction remains mostly unchanged from the June report, it shows that the policy rate will decline through 2025 at a somewhat quicker pace.
Inflation is predicted to exceed 2 percent by the end of 2027, while economic growth is anticipated to perk up modestly in the upcoming years.
According to economist Andrew Kenningham of Capital Economics, rate cuts will probably come a little sooner than expected. Kenningham has scheduled the first rate cut for December.
The economist added that the bank will lower rates next year at a pace that is more in line with investor expectations, albeit a little quicker than indicated by its predictions.
Final Thoughts
Norges Bank’s decision to maintain its benchmark interest rate at 4.50% while signaling an eventual easing highlights its cautious approach to balancing inflation control with economic stability.
By indicating that the policy rate will remain unchanged until the end of the year, Governor Ida Bache’s committee is likely aiming to ensure that inflationary pressures are kept in check before introducing rate cuts.
The forecast for gradual rate reductions starting in 2025 aligns with the bank’s objective of maintaining financial stability while providing relief as inflation trends lower and growth begins to pick up.
Economists, like Andrew Kenningham of Capital Economics, expect rate cuts to come sooner than Norges Bank’s official projections, possibly as early as December.
This view reflects a growing belief that the global economic environment, combined with investor expectations, may prompt the bank to adjust its timeline. While the forecast suggests a modest acceleration in rate cuts throughout 2025, the overarching strategy remains focused on managing inflation and stimulating the economy.
The timing and pace of these cuts will be crucial for both Norway’s domestic economy and its broader financial landscape.