Norway’s central bank cut its policy interest rate by 25 basis points to 4.25% on Thursday, its first rate cut since 2020.
The move, which came earlier than expected, was driven by easing inflation and signals that more reductions are likely in 2025.
“If the economy evolves broadly as currently projected, the policy rate will be reduced further in the course of 2025,” Norges Bank said in a statement. Governor Ida Wolden Bache later said the rate could be cut one or two more times this year, potentially bringing it down to 4.0% or 3.75%.
By the end of 2028, the central bank expects the rate to reach around 3%.
Core inflation slowed to 2.8% in May, down from previous months but still above the bank’s 2% target.
“Inflation has declined since the monetary policy meeting in March,” Bache said. “A cautious normalisation of the policy rate will pave the way for inflation to return to target without restricting the economy more than necessary.”
Norges Bank had kept the rate at 4.5% in its previous meeting, the highest level since 2008. The surprise decision on Thursday caused the Norwegian crown to weaken briefly to 11.56 against the euro, before recovering to 11.50 by late morning.
The central bank’s shift comes as other Western central banks are also easing policy. Sweden lowered its key rate on Wednesday to 2.0%, while the Swiss National Bank cut its rate to zero. The U.S. Federal Reserve held rates steady and signalled future cuts.
The Bank of England is expected to maintain its rate in a decision due later Thursday.
Norway’s Prime Minister Jonas Gahr Stoere welcomed the rate cut, saying, “This is especially good news for everyone with loans,” in a rare comment following a central bank decision. The announcement comes ahead of parliamentary elections in September, with polls showing the minority Labour government may return to power.
Norges Bank also said further cuts depend on whether wage and price growth slow as expected. If they remain higher, the central bank may reduce the number of cuts.
