Norges Bank postpones a loosening cycle again in May

Policymakers deliver another widely anticipated hold: At its meeting on 7 May, Norges Bank stood pat, leaving the sight deposit rate unchanged at a 17-year high of 4.50%. The hold was the 11th consecutive and had been priced in by markets.

Sticky inflation delays easing cycle: Norges Bank determined that elevated interest rates were “still needed” to guide inflation toward its 2.0% target. The Bank assessed that the output gap—how much bigger actual economic output is compared to its potential level—has become less positive thanks to recently restrictive monetary policy. This, in turn, has helped price pressures ease markedly since peaking at the tail end of 2022. Still, Norges Bank decided to postpone easing its stance as inflation continues to outpace target due to a tight labor market, recent depreciatory pressure on the krone and healthy wage growth. Moreover, the monetary authority highlighted that uncertainty has increased regarding the outlook for inflation and GDP growth on the back of rising protectionism in the U.S., further warranting a wait-and-see approach.

Rate cuts on the horizon: Norges Bank’s forward guidance echoed that of its last meeting, stating that the policy rate would “likely” be reduced this year, forecasting the rate at around 4.00% by December. Around half of our panelists see the Bank kicking off its monetary policy loosening cycle at its next meeting on 18 June—with the decision to be announced the following day—while the rest see it starting in Q3. Our Consensus is for 50–100 basis points of reductions overall in 2025.

Panelist insight: Swedbank’s Kjetil Martinsen commented: “Domestic developments are little changed relative to the March projections, suggesting the baseline of a first rate cut in September is still valid. Inflation would still need to decline closer to 2% before any cut is delivered. We continue to expect two rate cuts this year, in September and December. Slower global growth, lower oil prices and lower policy rates among important trading partners should result in more rate cuts priced in the June rate path over the coming years.”

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