Norway’s central bank, Norges Bank, announced an unexpected interest rate cut on Thursday, reducing its policy rate by 0.25 percentage points to 4.25%, citing growing economic uncertainty linked to global trade tensions and escalating geopolitical conflicts.
This move breaks the bank’s pattern of maintaining a steady rate since December 2023, when it last raised rates to combat inflation. Analysts had widely expected Norges Bank to hold rates steady at least until September.
Governor Ida Wolden Bache explained that inflation has eased since the central bank’s March meeting, with core inflation which excludes volatile energy prices slowing to 2.8% in May, though still above the bank’s 2% target.
“The inflation outlook for the coming year points to lower inflation than previously anticipated,” Bache said. “A cautious normalisation of the policy rate will help bring inflation back to target without unnecessarily restraining the economy.”
Norges Bank also indicated that it may consider further rate cuts later this year if the economic conditions evolve as currently projected.
The rate cut comes amid concerns over the economic fallout from US tariffs imposed during Donald Trump’s presidency and the ongoing conflict between Israel and Iran, which have heightened uncertainty in global markets.
“The uncertainty surrounding the outlook is greater than normal,” the bank noted. “Escalating conflicts and unclear future trade policies could trigger renewed financial market volatility and negatively affect growth prospects both in Norway and internationally.”
Norges Bank stressed that if the economy follows a different trajectory than forecasted, its policy rate path could also change accordingly.
