MNI Norges Bank Preview - June '25: Gearing Up for the H2 Cut

FOR THE FULL PUBLICATION PLEASE USE THE FOLLOWING LINK: MNI Norges Bank Preview - 2025-06.pdf

EXECUTIVE SUMMARY: 

• Norges Bank is firmly expected to hold rates at 4.50% on Thursday, at a quarterly meeting which includes an updated MPR and rate path projection. We expect guidance that the policy rate “will most likely be reduced in the course of 2025” will remain unchanged, with a risk of firmer guidance towards a September cut.
• Developments since the March meeting should warrant a modest downward revision to the rate path, but we still expect the June iteration to be consistent with two cuts this year. Over the last three months, spot inflation pressures have been lower than expected and energy prices have softened (assuming the latest spike on Israel/Iran tensions has come too late to impact the June forecasts). These factors should pull down the June rate path.
• However, mainland economic signals portray an economy that is coping relatively well with rates at 4.50%. This should limit the downward rate path revision and allow the board to guide for future easing without feeling pressured to commit to a specific meeting. Norges Bank were forced to abandon long-standing guidance for a 25bp cut at the March decision, owing to an unexpected uptick in domestic inflation pressures. This may also deter the Board from including meeting-specific guidance this week. In any case, a rate path that is consistent with 2x25bp cuts in H2 should be well understood by markets as being consistent with cuts in September and December, given Norges Bank’s historical aversion from meaningful policy pivots at non-MPR meetings.