On Thursday, Capital Economics provided insight into the future monetary policy of Norges Bank, suggesting that the central bank of Norway is likely to initiate interest rate cuts sooner than its current projections indicate.
The analysis follows today’s policy announcement, which kept the policy rate steady at 4.5%.
Norges Bank’s decision to maintain the current rate was widely anticipated by forecasters, including Capital Economics, as confirmed by a Reuters poll.
The central bank also signaled its intention to reduce the policy rate at its upcoming meeting in March, with a likely cut of 25 basis points. Despite being later than most developed market (DM) central banks to begin easing monetary policy, Norges Bank expressed the need for a continued restrictive monetary stance.
In its December projections, Norges Bank anticipated a gradual reduction of the policy rate, forecasting an average of 3.8% in the fourth quarter of 2023, 3.2% in the fourth quarter of 2026, and 2.9% in the fourth quarter of 2027.
However, Capital Economics cautions against taking these projections as definitive due to the historically unreliable nature of central bank forecasts extending several months into the future.
Instead, Capital Economics predicts that inflation trends will permit Norges Bank to reduce interest rates more rapidly, estimating a quarterly cut of 25 basis points until the policy rate reaches 3% by mid-2026.
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