Norges Bank kickstarts a loosening cycle in June

Policymakers deliver a surprise cut: At its meeting on 18 June, Norges Bank kicked off a monetary policy loosening cycle, cutting the sight deposit rate from a 17-year high of 4.50% to 4.25%. The move surprised most market analysts, who had expected a 12th consecutive hold. Rates remain at some of the highest levels in decades.

Weaker underlying inflation and economic growth outlooks drive move: Norges Bank determined that it was “appropriate” to start a “cautious” loosening cycle to support economic activity while ensuring that inflation trends down toward its 2.0% target. Policymakers assessed that the output gap—how much actual economic output exceeds its potential—has nearly closed thanks to restrictive monetary policy. This, in turn, has helped price pressures ease markedly since peaking at the tail end of 2022. Moreover, the Bank stated that underlying price growth has eased faster than projected in its last meeting in March and downgraded its inflation forecasts for the coming years. Regarding the real sector, Norges Bank took an axe to its forecast for GDP growth in 2025, expecting rising protectionism in the U.S. to weaken demand for hydrocarbons, which account for nearly 75% of goods exports.

Further easing on the horizon: Norges Bank’s forward guidance was slightly more dovish than in March, stating that the policy rate would be reduced to “just below” 4.00% by December. Still, the Bank highlighted rising uncertainty around the inflation and growth outlooks—particularly tied to U.S. tariff policy and geopolitical tensions in the Middle East—leaving the door open for rate hikes or faster monetary policy loosening should the economy deviate from its forecast path. Our panelists see the Bank easing its stance further by December, penciling in up to 50 basis points of further rate cuts. Norges Bank will reconvene on 14 August, with the decision to be announced the following day.

Panelist insight: SEB’s Erica Dalstø and Marthe Eide commented: “The door is now open for further cuts ahead, and as we continue to expect a faster normalization of inflation relative to Norges Bank we continue to expect a 25bps rate cut in both September and December, implying a policy rate at 3.75% by year-end.” Kjetil Olsen and Sara Midtgaard, analysts at Nordea, were more hawkish: “After today’s rate cut we think Norges Bank will cut again in September to 4.00% but be on hold thereafter. The economy will be much more stimulated by rate cuts than Norges Bank assumes. The number of cuts will be fewer than Norges Bank signals.”

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