Norges Bank holds policy rate at 4.50% and signals first cut in early 2025

Norges Bank kept its policy rate unchanged at 4.5% on Thursday 19 September 2024, and said the rate would most likely remain at that level until the end of the year before being reduced gradually from the first quarter of 2025. The decision was taken by the Monetary Policy and Financial Stability Committee at its meeting on 18 September and published alongside the bank's Monetary Policy Report 3/2024.

INFLATION LOWER THAN EXPECTED

The committee noted that inflation had fallen further since its June report and had been lower than projected. Consumer price inflation eased to 2.6% in August, while the CPI-ATE measure of underlying inflation, which adjusts for tax changes and excludes energy products, stood at 3.2%. The committee said underlying inflation had not declined to the same extent as headline inflation.

Growth in the Norwegian economy had been low through 2023 and remained sluggish in 2024, with second-quarter growth slightly below the bank's projections. Registered unemployment was 2.0% in August, close to its level before the summer and in line with the previous forecast.

KRONE WEAKNESS A RISK

The krone had depreciated and was weaker than projected in June, with the import-weighted exchange rate around 3% weaker than the bank had assumed. The committee warned that if the krone depreciated further, wage and price inflation could remain elevated for longer. It also said that high wage growth and weak productivity growth would keep business cost growth high, with annual wage growth projected at 5.2% for 2024.

The updated policy rate forecast was little changed from the June report, which had already indicated that the rate would stay at 4.5% until the end of 2024. The September path pointed to a slightly faster decline in the policy rate through 2025 than previously projected.

The decision came a day after the US Federal Reserve lowered its policy rate by 50 basis points. Norges Bank's next monetary policy decision was scheduled for November.