Norway’s central bank to keep rates on hold this week, cut in December – Reuters poll by Reuters

OSLO (Reuters) – Norway’s central bank will keep its key policy interest rate unchanged this week at a 16-year high of 4.50 percent, all 27 economists in a Reuters poll said in as investors look for signs of when Norges Bank might finally start to cut borrowing costs.

The central bank said its monetary policy needed to balance above-target inflation, exacerbated by a weakening currency, with a cooling economy now experiencing subdued overall growth.

Last month, the central bank said Norway would keep rates on hold for “a while” to combat inflation and is expected to say on Thursday whether that means a cut could come by the end of the year or wait until next year future.

Norges Bank’s most recent forecast, published in June, called for three rate cuts in 2025, each by a quarter of a percentage point to end the year at 3.75%, with the first of those cuts scheduled for March at the earliest.

The forecast will be updated on Thursday, with most analysts polled from September 12-16 now expecting a cut in December this year, followed by four more cuts by the end of 2025 to a policy rate of 3.25%.

Meanwhile, market prices predict up to seven rate cuts by the end of 2025, brokers said, reflecting expectations of steady rate cuts overseas, including by the US Federal Reserve, which will provide a policy update on Wednesday.

DOES HAWKISH SURPRISE?

Some analysts have warned, however, that the weak currency could force Norges Bank to hold back to avoid a further drop in inflation against the euro and dollar.

“In our view, the market expects a hawkish surprise,” Handelsbanken said in a note to clients on Sept. 12, adding that the most likely time for a cut was in March next year.

“The rate trajectory will be somewhat reduced, but not as much as the market anticipates,” he added.

Norway’s core inflation, which excludes changes in energy prices and taxes, fell to 3.2 percent annually in August, down from 3.3 percent in July, in line with analysts’ expectations, but well above the target of 2 .0% of the central bank.