Norges Bank surprised markets with a rate cut to 4.25%

On Thursday, Norway's central bank (Norges Bank) surprised markets by announcing a 25 basis point reduction in its policy interest rate to 4.25%, signalling the expectation of further cuts due to a more favourable inflation outlook. The cut was the first one since 2020.

The Nordic central bank argued that the economic outlook is uncertain but indicated that if the economy evolves broadly as currently projected, the policy rate would be reduced further in the course of 2025.

Furthermore, Governor Ida Wolden Bache later indicated at a press conference that the policy rate might be reduced one or two more times by the end of the year, potentially bringing the interest rate down to either 4.0% or 3.75%.

Additionally, the Norges Bank indicated that by the end of 2028, the rate would likely be around 3%.

Market Reaction

The Norwegian Krone (NOK) depreciated to multi-day lows vs. the European currency on Thursday, lifting EUR/NOK to the proximity of the 11.6000 zone, adding to Wednesday's uptick at the same time.