- Decision
- Lower
- Rate change
- 25 bps
- policy rate
- 4.25%
Norges Bank’s Monetary Policy and Financial Stability Committee cut the policy rate by 25 bp to 4.25 % at the 19 June 2025 decision, judging that cooling inflation, a slightly higher-than-expected uptick in unemployment and signs of spare capacity allow a “cautious normalisation” while still securing a return of inflation to the 2 % target; it stated that further reductions are likely during 2025 if the outlook holds. After being lifted sharply to curb price pressures, the rate had been held at 4.5 % since December 2023, including unchanged decisions in January, March and May. Headline CPI slowed to 3.0 % y/y in May and inflation excluding energy was below March projections, while lower expected wage growth in 2025 is seen aiding disinflation; domestic demand has firmed as household consumption and housing investment edge higher, though unemployment has risen slightly from its low base. Externally, trade-policy tensions and higher tariffs are damping growth prospects for key trading partners, and the krone—having first weakened during April’s market turbulence and then strengthened—softened again after the announcement. Heightened geopolitical risks in the Middle East and shifts in US policy have added market volatility and contributed to falling commodity prices, which should ease imported cost pressures. The Committee’s rate path is marginally lower in the near term and a little higher further out, implying only a gradual decline in mortgage rates and reiterating that policy will be adjusted if incoming data diverge from the forecast.
Rate evolution
Over the period, Norges Bank first cut the policy rate from 4.50% to 4.00% in mid-2025, then paused before raising it to 4.25% in May 2026, holding it in June and August and returning it to 4.50% in September. The initial easing reflected slowing inflation, including lower inflation excluding energy prices, and higher unemployment pointing to more spare capacity, while through late 2025 Norges Bank kept policy restrictive as inflation remained above target, growth appeared firmer than assumed and krone depreciation lifted inflation prospects amid trade and geopolitical uncertainty.
By May 2026, unexpectedly high inflation, stronger wage growth prospects and external price pressures linked to the war in the Middle East had shifted guidance from cuts to tightening and then a rate increase, while on 18 June Norges Bank held the policy rate at 4.25%, citing consumer price inflation of 3.1%, higher imported goods inflation and stronger wage and external price pressures, and signalled a likely increase at one of the forthcoming meetings. On 12 August, it again held the rate at 4.25% after inflation slowed more than projected, with July 12-month consumer price inflation at 3.0% and inflation adjusted for tax changes and excluding energy products at 2.7%, judging that policy should remain restrictive because inflation was still markedly above target and rapid business cost growth would keep it elevated, even as capacity utilisation appeared close to normal but was drifting down.
On 23 September, Norges Bank raised the policy rate from 4.25% to 4.50%, judging that a somewhat tighter stance was needed to return inflation to target within a reasonable time horizon as inflation remained markedly above target and the outlook further ahead had not changed materially despite lower-than-projected underlying inflation and capacity utilisation slightly below normal. It said the policy rate would likely need to remain elevated for a time and signalled that further increases were possible if warranted by the inflation outlook.