Norway's Central Bank Holds Interest Rate Steady

OSLO (Reuters) – Norway's central bank maintained its policy interest rate at a 16-year high of 4.50% on Thursday, as expected. The bank indicated plans to reduce rates three times in 2025, revising its previous forecast of four cuts.

Governor Ida Wolden Bache stated, "The committee judges that a restrictive monetary policy is still needed to stabilise inflation around target, but that the time to begin easing monetary policy is soon approaching."

The central bank expects to reduce the policy rate to 3.75% by the end of 2025, with the first cut likely in March 2025. This prediction is a revision from an earlier forecast of 3.50% the following year.

Following the announcement, the Norwegian crown weakened to 11.79 against the euro from 11.76.

Norway's monetary policy is notably different from other Western central banks, which have already started cutting rates this year as growth has slowed and inflation eased.

Economists noted that Norway's economy remains resilient despite high interest rates, supported by increased business investments, wages, government spending, and currency depreciation.

Norges Bank reported a more favorable economic outlook than previously expected, citing subdued inflation pressures but acknowledging significant uncertainty.

A Reuters poll conducted from December 11-16 showed broad consensus among analysts that the central bank would maintain rates this week and start cuts in early 2025. Brokers Nordea expressed concern that prolonged holding of rates could constrict the economy, particularly with the potential for increased unemployment.

The bank also highlighted risks from potential trade wars between the U.S. and China, expressing concerns over international trade barriers impacting global growth and the uncertain effect on Norwegian price prospects.

In other developments, the U.S. Federal Reserve reduced rates by 25 basis points recently, signaling further dependence on progress toward reducing inflation. Norway's core inflation rose to 3% year-on-year in November, surpassing the central bank's 2% target.

The Swedish central bank also cut rates by 25 basis points, indicating possible further easings in early 2025. The Bank of England is expected to update its rate decisions later today, with no changes anticipated.