MNI NORGES WATCH: Cut Could Come Now, Or Later This Year

Analysts are divided over whether Norges Bank will cut its policy rate at its September meeting, which would be compatible with its most recent in-house rate path though verbal guidance refers only to further easing "during the course of 2025" without offering further precision. 

Governor Ida Wolden Bache was careful not to pin down the likely timing of the next move following August’s decision to leave the rate on hold at 4.25%, describing the Bank’s approach as "cautious normalisation" and noting that the Norwegian economy had evolved broadly in line with previous quarterly projections in June. The June rate path priced in one cut and a possibility of a second this year. The September meeting will be informed by an updated forecast round.

Norges Bank had earlier surprised markets with the timing of its first cut this cycle. After having steered to a March cut, unexpectedly strong inflation data prompted it to hold instead and then it wrong-footed observers by cutting in June. Wolden Bache has subsequently avoided meeting specific guidance. (See MNI INTERVIEW: Cut Surprise Just Timing Issue -Norges Governor)

EXPECTATIONS SHIFT UPWARDS

Having lagged other central banks in commencing its easing cycle, there seems little doubt Norges Bank will continue to cut, though rate expectations have shifted upwards. In August analysts were seemingly united in anticipating a September cut but a sizeable minority-- five out of 13 in the MNI review -- have now shifted to a hold. 

The September rate path is expected to move higher from June’s. Whether or not there is a cut this week, it would be a surprise if the guidance provides a strong steer to easing in December, which would be a reversion to meeting-specific guidance. Analysts also expect a higher terminal point than June's 3.1%. 

Norges Bank has been edging towards producing scenarios to accompany its central rate path and economic projections, and further progress is likely in the September Monetary Policy Report. In June the central forecast was for the krone to depreciate slightly before stabilising, though the central bank’s economists noted options pricing which suggested that the currency was more likely to weaken by more than 5% than to strengthen by 5% or more. Since June, the krone has strengthened a couple of percent on the central bank's import weighted exchange rate index, which at the margins is supportive of the case for easing this month.