Norges Bank maintained its policy rate unchanged last week, consistent with expectations. The interest rate trajectory outlined in December did not definitively indicate a March rate reduction. The updated path now suggests a more gradual and less aggressive easing cycle through 2027. While a rate cut is still anticipated this year, the central bank has not provided specific timing guidance, according to Commerzbank FX analyst Antje Praefcke.
The central bank’s rationale centers on recent inflationary pressures exceeding forecasts. Premature easing could exacerbate price increases. Norges Bank is responding to elevated inflation observed at the beginning of the year. As previously stated, a significant downward surprise in inflation would be necessary for it to reach the target within the year, which is not currently anticipated.
The projected interest rate path is now approximately 25 basis points higher across the forecast horizon. Similar to other central banks, Norges Bank acknowledges significant uncertainty stemming from trade conflicts and potential tariff increases. The precise impact on prices and economic growth remains difficult to predict. While imported inflation is likely to increase, weaker global demand and a stronger krone could mitigate inflationary pressures.
