MNI NORGES WATCH: Aug Hold Foreseen, Door Open To More H2 Cuts

Norges Bank is expected to leave its key policy rate on hold at 4.25% in August, following up its June cut by sitting tight this month, with market expectations for a couple more cuts later in the year.

The Norwegian central bank’s June rate path was compatible with "one or two" further cuts in the second half, and market pricing and analysts have converged on September and December as the most likely months for the next steps downward.

Governor Ida Wolden Bache in June told MNI that the surprise cut that month was just down to timing, after it had been postponed because of surprisingly strong inflation numbers in March (See MNI INTERVIEW: Cut Surprise Just Timing Issue -Norges Governor )

There has likely been enough upside inflation news since June to ensure that Norges Bank will want to avoid steering hard to a September cut. Wolden Bache will instead again advocate "cautious normalisation,” while the committtee's guidance will remain as "the policy rate will be reduced further in the course of 2025,” if the economy evolves broadly as anticipated.

Core inflation on the CPI-ATE, ex-taxes changes and energy, measure ticked up to 3.1% on the year in June, and the krone has depreciated on Norges Bank's import-weighted index since June.

The inflation and FX moves point to a case for caution, but without a full forecast round it would be surprising if Wolden Bache were to push back against market rate expectations and make any clear suggestion that the anticipated further H2 easing will not materialise. With the policy rate at 4.25%, clearly in restrictive territory, and with Norges Bank having lagged other central banks in joining the easing cycle there does not appear to be a compelling case as yet to indicate they could go back to being on hold for any prolonged period.