Interest rates in Norway dropped to 4%
Norges Bank Announces Cautious Monetary Policy Adjustments
In a recent announcement, Norges Bank, Norway's central bank, reduced its policy rate from 4.25% to 4% on September 17, 2025. This move comes as a response to the cooling Norwegian economy and dampened inflation, a trend that has been influenced by a restrictive monetary policy stance in recent years.
Ida Wolden Bache, the newly appointed governor of Norges Bank, has outlined a cautious normalization of the policy rate. According to her statement, a further reduction in the policy rate is expected over the coming year if the economy develops as projected. However, if inflation returns to the target faster, or if labor market conditions deteriorate, the policy rate may be lowered more quickly.
The Committee of Norges Bank assumes that a higher policy rate will be required compared to the June projection. The policy rate projection gradually declines to somewhat above three percent by the end of 2028, according to this report. The exact timing and extent of future policy rate changes are dependent on economic developments.
The average interest rate on housing loans is expected to fall to slightly above 4.5% by 2028. However, if inflation remains elevated longer than projected, a higher policy rate may be required than currently planned.
The Committee continues to monitor economic conditions closely and will adjust the policy rate as necessary to meet the inflation target. Governor Wolden Bache emphasized that a cautious easing of monetary policy will help bring inflation back to its target without excessively restricting the economy.
However, future economic development is uncertain due to unpredictable conditions for international cooperation and trade. Wage growth and its impact on future domestic inflation is also uncertain. Despite a reduction in inflation, it still lies above the two percent target, according to Norges Bank reports. Unemployment has risen slightly from a low level, and production is now close to its potential.
For more details about the interest rate decision, the presentation can be found here. The Committee believes that a restrictive monetary policy is still needed to avoid inflation remaining above the target for too long. If the economy develops differently than currently expected, the policy rate may differ from the forecast.
In conclusion, Norges Bank is taking a measured approach to adjusting its monetary policy, aiming to strike a balance between controlling inflation and supporting economic growth in the face of uncertain global conditions.
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