Norges Bank pauses loosening cycle in August, as expected

Norges Bank errs on side of caution and holds fire: At its meeting on 13 August, Norges Bank paused the long-awaited loosening cycle it kicked off at its prior meeting in June, leaving its sight deposit rate at 4.25%. The hold had been priced in by markets.

Inflation remains too high and economic uncertainty elevated: Factors driving the decision include the fact that headline and core inflation remain above target, meaning that restrictive monetary policy is still needed to bring price pressures back to the Bank’s 2.0% target. Additionally, the krone weakened recently on declining oil prices and June’s surprise interest rate reduction. The Bank also noted that uncertainty over the global trade regime and the impact of changes in tariffs on the economy remains high.

Reductions set to resume before 2025 ends: Norges Bank’s forward guidance indicated that the policy rate will be “reduced further in the course of this year”. In its latest forecasts published at its prior June meeting, Norges Bank said it saw its policy rate ending 2025 “just below 4.00%”. Our Consensus is for the sight deposit rate to be reduced by around 50 basis points by end-December. Norges Bank is set to reconvene on 17 September, with its decision announced the following day; the September meeting will be accompanied by fresh Norges Bank forecasts, including for interest rates.

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