Norway central bank to keep rates on hold this week, cut in December- Reuters poll

OSLO (Reuters) – Norway’s central bank will keep its key policy interest rate unchanged this week at a 16-year high of 4.50%, all 27 economists in a Reuters poll said, as investors look for signs of when Norges Bank may eventually begin to cut borrowing costs.

The central bank has said its monetary policy must balance above-target inflation, exacerbated by a falling currency, with a cooling economy that now sees low overall growth.

Last month the central bank said Norway would keep rates on hold for “some time” to combat inflation, and it is expected to say on Thursday whether this means a cut could come by year-end or would wait until next year.

Norges Bank’s most recent forecast, released in June, called for three rate reductions in 2025, each by a quarter percentage point to end the year at 3.75%, with the first of those cuts slated for March at the earliest.

The forecast will be updated on Thursday, and a majority of analysts in the Sept. 12-16 poll now expect a cut in December this year followed by four more cuts by the end of 2025 to a policy rate of 3.25%.

Market pricing meanwhile predicts as much as seven rate cuts by the end of 2025, brokers said, reflecting expectations of steady rate reductions abroad, including by the U.S. Federal Reserve which will give a policy update on Wednesday.

HAWKISH SURPRISE?

But some analysts cautioned the weak currency could force Norges bank to hold back to avoid a further inflation-inducing drop against the euro and the dollar.

“The market is in for a hawkish surprise, in our view,” Handelsbanken said in a Sept. 12 note to clients, adding that the most likely timing of a cut was in March of next year.

“The rate path will be lowered somewhat, but not to the extent that the market is anticipating,” it added.

Norway’s core inflation, which strips out changing energy prices and taxes, eased to 3.2% year on year in August, down from 3.3% in July, in line with analysts’ expectations but still well above the central bank’s 2.0% target.