Norges Bank delivers second rate cut of the year in September

Norges Bank cautiously advances towards policy normalization: At its 17 September meeting, Norges Bank resumed its loosening cycle—which was paused in August after having started in June—reducing its sight deposit rate by 25 basis points to 4.00%. The reduction was largely anticipated by markets.

Inflation evolves as expected: Norges Bank felt inclined to cut rates as uncertainty surrounding U.S. trade policy—and therefore the outlook for Norway’s economy—subsided. Moreover, the Bank noted that headline inflation evolved largely as anticipated through August, as has the labor market, with unemployment stabilizing in recent months after rising from the low reached three years ago. Despite the cut, the Bank’s policy stance remains restrictive, as Norges Bank assessed that inflation will return to target slower than previously expected, fanned by a sharp rise in business costs: Wages have risen at a faster pace than projected in the Bank’s June report.

The normalization of the policy rate will take longer than projected in June: September’s meeting was accompanied by fresh Norges Bank forecasts, which see a somewhat higher path for the policy rate in the future than in June. The Bank projects its policy rate to end 2025 at its current level, in line with our Consensus forecast; that said, a minority of our panelists see room for a quarter-point cut. In 2026, the Bank forecasts that it will reduce its policy rate by 25 basis points, compared to our Consensus for 75 basis points of reductions. Norges Bank is set to reconvene on 5 November, with its decision announced the following day.

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