Central Bank of Norway lowers its interest rate, anticipates less stimulus in the future
Norges Bank, Norway's central bank, has reduced its key policy rate by 25 basis points to 4%, marking the second cut this year. The decision comes amidst a positive outlook for growth and investment, as indicated by a central bank business survey.
Three out of four economists had expected this move, while seven forecast no change. The policy interest rate in Norway was previously at 4.25%. Norges Bank's monetary policy committee concluded that a rate cut was appropriate, given the current economic conditions.
The economy grew more than expected in the first half of the year, with data since June indicating little spare capacity in the Norwegian economy. Inflation may remain high for slightly longer than previously expected, according to Norges Bank.
The next rate reduction is likely to come in the third quarter of 2026, according to Sparebank 1's chief economist. However, Norges Bank plans to cut borrowing costs again this year, with fresh forecasts suggesting one rate cut per year in the coming three years.
Handelsbanken predicts that Norges Bank will only cut twice in the coming years, with the next rate reduction expected to be a 'hawkish cut'. This means it was made now while signaling a long time until the next reduction.
The US Federal Reserve, meanwhile, reduced interest rates for the first time since December. The European Central Bank, on the other hand, maintained an upbeat view on growth and inflation, dampening expectations for any further cut in borrowing costs.
Recent data showed an increase in underlying August inflation, which may contribute to the central bank's decision to cut rates. Norges Bank has not specified at which meeting the next rate cut could occur.
Despite the rate cut, the Norwegian economy remains relatively strong, with the central bank aiming to strike a balance between maintaining growth and keeping inflation under control. The key interest rate now stands at 4%.
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