Norges Bank holds policy rate at 4.5% and signals cut likely in the course of 2025

Norges Bank kept its policy rate unchanged at 4.5 per cent, it announced on 27 March 2025, following a meeting of its Monetary Policy and Financial Stability Committee on 26 March. The committee said its current assessment of the outlook implied that the policy rate would most likely be reduced in the course of 2025.

“Inflation has picked up and been markedly higher than expected. If the policy rate is lowered prematurely, prices may continue to rise rapidly. Therefore, we decided to leave the policy rate unchanged now,” said Governor Ida Wolden Bache.

INFLATION ABOVE EXPECTATIONS

The policy rate has stood at 4.5 per cent since December 2023. In December 2024 the committee had signalled that it would reduce the rate in March if the economy evolved as envisaged, and it repeated that intention in January. It said the economy had not developed as expected and that the current stance was warranted for somewhat longer than previously signalled.

Twelve-month consumer price inflation rose to 3.6 per cent in February, while CPI inflation adjusted for tax changes and excluding energy products (CPI-ATE) increased to 3.4 per cent. Food prices made a substantial contribution to the rise. Overall wage growth reached 5.6 per cent in 2024, higher than projected, and the central bank said higher business costs were likely to stoke inflation ahead.

RATE PATH AND RISKS

The policy rate forecast in the March Monetary Policy Report is consistent with a decline to 4 per cent by the end of 2025, followed by a gradual further decline, and was revised up somewhat from the previous report. Inflation is projected to approach the 2 per cent target towards the end of 2028.

Norges Bank said uncertainty was greater than normal. More extensive trade restrictions could weaken the outlook for the Norwegian economy, and a more temporary pickup in inflation or a larger-than-projected rise in unemployment could lead to faster rate cuts, while more persistent wage and price inflation could require a higher policy rate than currently envisaged.