Norges Bank Expected to Hold Rates Steady as Inflation Eases

Key Moments

Policy Outlook: Rate Hold Expected in August

Nomura analysts Josie Anderson, George Buckley and Andrzej Szczepaniak anticipate that Norges Bank will maintain its policy rate at 4.25% at the upcoming August policy meeting. They point to softer underlying inflation and generally benign domestic data as the main reasons for expecting no change in rates.

According to the economists, the central focus for markets is likely to be the Bank’s forward guidance on the possibility of further rate increases later in the year. They note that recent downside surprises in CPI-ATE have lowered the odds of additional tightening, while emphasizing that rate cuts are not being considered at this stage.

Inflation Developments Undercut Case for Near-Term Hike

The analysts highlight that underlying inflation decelerated unexpectedly in June to 2.7% year-on-year, marking its first drop below 3% since May 2025. The latest figures indicate that underlying inflation also remained at 2.7% in July, contrary to both their own and consensus expectations for a slight acceleration.

They describe this weaker inflation profile as the primary factor behind their expectation that Norges Bank will refrain from raising rates in August, even though the central bank had previously signaled that an increase was possible at its last meeting.

June Minutes and Shifting Expectations

The June meeting minutes played a key role in Nomura’s earlier assessment of the policy path:

“"We expect Norges Bank to leave its policy rate unchanged at 4.25% at its August policy meeting. Underlying inflation unexpectedly slowed in June to 2.7% year-on-year, its first time below 3% since May 2025, and also remained at that rate in today’s data for July (against our and consensus expectations of a slight re-acceleration). This slower rate of inflation is the key reason why we expect Norges Bank to leave its policy rate unchanged despite signalling the possibility of a hike at its last meeting."”

“"The June minutes said that “some members expressed concern that the stance is not sufficiently restrictive to bring inflation down and argued in favour of raising the policy rate now”, which prompted us to bring forward our expectation of the next rate rise to August from September. However, the soft inflation data since then now suggest an August hike is unlikely."”

Guidance in Focus at the Upcoming Meeting

Nomura stresses that the crucial question for this week’s meeting is whether Norges Bank will continue to indicate that another rate hike is likely. The analysts note that the central bank will not be updating its forecasts or policy rate projections in August.

“"A key issue at this week’s meeting will be whether Norges Bank continues to signal that another hike is likely. It will not update its forecasts or policy rate projections in August. However, it may note that the inflation outturns since the June projection have meant the monetary policy outlook has changed, and a rate hike is now less likely than was suggested at the last meeting."”

Reduced Probability of Further Hikes This Year

The economists conclude that the recent inflation data have likely eased concerns about persistent price pressures, diminishing the case for another increase in the policy rate.

“"Overall, we expect Norges Bank to leave its policy rate unchanged at its August meeting, as concerns about sticky inflation have likely eased. In our view, today’s second consecutive downside CPI-ATE inflation surprise has also lowered the probability of a September hike. We therefore think Norges Bank’s guidance could signal a lower likelihood of a second rate hike this year than was suggested in June, but that uncertainty remains very high."”

Summary of Key Data and Policy Signals