Norway Holds Key Rate at 4.25% as Inflation Cools, Future Hike in Doubt

Norway's central bank left its benchmark interest rate unchanged at 4.25% on Thursday, a decision that was widely anticipated by economists. The move comes as recent data shows inflation easing more quickly than projected, prompting the bank to soften its earlier guidance on further tightening.

In June, Norges Bank had indicated that a rate increase was likely at one of the upcoming policy meetings. However, in its latest statement, the bank said the future path of the policy rate will depend on economic developments, a shift that suggests a more data-dependent approach.

Governor Ida Wolden Bache acknowledged that inflation has slowed and come in below expectations during the summer, calling it welcome news. Still, she cautioned that price growth remains above the central bank's 2% target and that it is too early to conclude the inflation outlook has fundamentally changed. "It may thus still become necessary to raise the policy rate," she said.

Core inflation held steady at 2.7% year-on-year in July, below Norges Bank's forecast of 3.3% but still above target. The bank's policy committee also noted concerns about persistently low construction activity and the potential for falling house prices to further dampen economic momentum.

Following the announcement, the Norwegian crown weakened slightly against the euro, trading at 10.98 compared with 10.93 just before the decision.

Analysts had unanimously predicted the hold, though a majority still expect one more 25-basis-point hike later this year, likely to 4.50%. Norges Bank said it will present a fresh economic outlook next month. Sweden's central bank is due to announce its own rate decision on August 20, with most analysts expecting no change.