MNI NORGES WATCH: Holds, Foresees Very Gradual Easing

Norges Bank left its policy rate on hold at 4.0% at its December meeting and published an updated rate path that pointed to only very gradual easing ahead.

"We are not in a hurry to reduce the policy rate," Governor Ida Wolden Bache said, with the policy committee stating that if things evolved as expected the rate would be lowered in the course of 2026.

The new rate path in the Monetary Policy Report showed it dipping to 3.92% by the end of the second quarter of 2026 and 3.71% by year end, then down to 3.2% by the end of the three-year projection.

The Committee stated that restrictive monetary policy was still needed and that it envisaged "a cautious normalisation of the policy rate."

It said that the forecast was compatible with one to two cuts in 2026, with the detailed forecast providing no clear steer between the two possibilities.

The expected real interest rate was little changed from the September Report and was at the top end of Norges Bank's estimated real R-Star range at 1.5%. (See MNI INTERVIEW: Norges Bank More Restrictive Than Implied By R* )

FORECASTS

In the Monetary Policy Report, inflation was forecast to hold above the 2% target on the core CPI-ATE (ex-tax) measure throughout the three-year forecast.

It was shown at 2.7% in 2026, down 0.1 percentage point from the previous projection in September, and at 2.4% in 2027 and 2.2% in 2028, both up 0.1 point.

Norges Bank described its economic forecasts as little changed from September, and Wolden Bache said "We will finish the job and ensure that inflation is brought all the way back to 2%."

The bank's mainland, or ex-offshore energy sector, GDP growth projections were lowered to 1.6% for 2025 from 2.0% previously and 1.3% for 2026, down from 1.5%.

Norges Bank said that "there is now slightly more spare capacity in the economy than projected in September" citing higher-than-expected unemployment and a pick-up in potential growth, based on temporary factors including population increase with a large inflow of Ukrainian refugees.

A small negative output gap, with actual output below potential, was forecast to open up from next year onwards.

The krone was assumed to hold steady on its I-44 import weighted index.