MNI NORGES WATCH: Hawkish Cut As Policy Path Raised
Norges Bank cut its policy rate by 25 basis points to 4.0% but raised its in-house rate path at its September meeting, suggesting that if things evolved as expected it would only cut by 25bp a year over the next three years.
The rate path showed only a slight chance of a further cut this year, with the policy rate predicted at 3.9% in 2026, up 0.3 percentage points on the June forecast, 3.5% in 2027, also up 0.3 pp and 3.3% in 2028, up 0.2 points.
"We do not envisage a large decrease in the policy rate ahead. The forecast ... is consistent with one rate cut per year in the coming three years," Governor Ida Wolden Bached said.
Norges Bank's Monetary Policy and Financial Stability Committee reaffirmed its commitment to a policy of "cautious normalisation," with inflation forecast to stay above target. (See MNI NORGES WATCH: Cut Could Come Now, Or Later This Year)
INFLATION, GROWTH
Inflation on the target CPI-ATE core inflation measure was forecast to hold pretty steady this year, at 3.2% in September and only dipping to 3.1% by December. It was forecast to be 2.8% in 2026 and 2.3% in 2027, both up 0.1 percentage point on the previous forecast, and 2.1% in 2028.
But Norges Bank envisages weakness in economic activity. Mainland, or non-oil and gas, growth was expected to rally in 2025 to 2.0% but to slow to 1.5% in 2026 and 1.3% in 2027 and 2028, both down 0.1 percentage point from the previous forecast. Overall GDP growth was forecast to fall to just 0.2% in 2027 and to contract 0.3 percentage points in 2028.
For monetary policy purposes "our focus is on mainland GDP," Wolden Bache said in response to a question from MNI, adding that officials expected productivity to pick up from recent low levels and that increased demand would underpin activity.
Petroleum investment is expected to decline in coming years, and Norges Bank only envisages modest growth in exports over the period while public sector spending is anticipated to rise in 2026 before gradually declining.
