Norway Unexpectedly Cuts Key Rate, Ending Outlier Status

Ida Wolden Bache Photographer: Naina Helén Jåma/Bloomberg Photo by Naina Helén Jåma /Bloomberg

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(Bloomberg) — Norway’s central bank surprised with its first post-pandemic reduction of borrowing costs and said more cuts are on the cards for this year. The krone slid.

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Norges Bank lowered its key deposit rate on Thursday by a quarter point to 4.25%, wrong-footing all economists surveyed by Bloomberg, none of whom expected a change. If the economy evolves broadly as currently projected, the policy rate will be reduced further in the course of 2025, the officials said.

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“Inflation has declined since the monetary policy meeting in March, and the inflation outlook for the coming year indicates lower inflation than previously expected,” Governor Ida Wolden Bache said. “A cautious normalization of the policy rate will pave the way for inflation to return to target without restricting the economy more than necessary.”

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The krone fell as much as 1.3% to 11.5994 per euro to hit its weakest since May 30 after the announcement.

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The decision brings Norges Bank more in line with monetary authorities in other developed nations after it repeatedly postponed the start of interest-rate cuts deployed by global peers. 

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The aggressively hawkish stance of Norwegian officials had been underpinned by the strength of the energy exporter’s economy and the weakness of the krone. A temporary spike in inflation delayed a planned cut in March, while a brighter picture for domestic demand appeared to have reduced urgency for any easing before autumn.

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The rate forecast in Thursday’s report declines to just below 4% at the end of 2025 and to about 3% toward the end of 2028, Norges Bank policymakers said.

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The central bank delivered a “big surprise with cut today,” Kristoffer Kjaer Lomholt, head of corporate research and FX at Danske Bank A/S, said. “They frontload the cuts they have been talking about” but “they ultimately will deliver fewer cuts in the next three years.”

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The krone pulled further away from a 15-month high of 11.2614 hit in April, and was set for its biggest intraday decline since then. The krone has been among the best-performing G-10 currencies versus the greenback so far this year, soaring more than 16%.

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The Riksbank of neighboring Sweden cut its key rate to 2% in a decision published on Wednesday, while the Bank of England is widely anticipated to keep borrowing costs on hold later in the day.

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—With assistance from Simon Lee, Stephen Treloar, Anton Wilen, Christopher Jungstedt, Christian Wienberg and Sanne Wass.

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(Updates with krone from first paragraph, economist comment in eighth paragraph.)

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