Nordea’s Chief economist Kjetil Olsen argues that Norges Bank can no longer justify further rate cuts as Norwegian inflation trends higher and remains well above target. Underlying inflation is around 3.5%, while unemployment has edged lower and growth has picked up. Nordea sees no room for rate cuts and warns a rate hike is now as likely as a cut.

Norges Bank shifts focus toward inflation

"Inflation is too high and trending up. The central bank can no longer afford to support the economy with further rate cuts. Looking ahead, a rate hike is just as likely as a rate cut."

"The latest inflation figures strongly reinforce what Norges Bank has already emphasized: the job is not done. Underlying inflation has been trending upward since autumn 2024 and currently sits at around 3½%. This development must be increasingly uncomfortable for a central bank whose inflation target is around 2% over time—especially considering that it is four years since inflation was last within reach, and their own forecasts imply it will take another three years to return to target."

"We believe the Committee will place more weight on the inflation side of their mandate going forward, leaving no room for rate cuts in the foreseeable future."

"If unemployment does indeed fall— even modestly— the foundation for Norges Bank’s current strategy essentially collapses."

"For now, Norges Bank is being “saved by the bell” in the form of a stronger NOK, which is currently 4.5% stronger than they assumed in December. But this does not give the Bank a reason to cut rates—if anything, it prevents them from hiking. We would likely need to see a significantly stronger NOK before rate cuts return to the discussion."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)