Nomura economists Josie Anderson, George Buckley, Andrzej Szczepaniak and David Seif note that Norges Bank kept its policy rate at 4.25% in June but delivered hawkish guidance and a higher rate path. They now expect a 25bp hike to 4.50% in Q3, most likely in August, and still project gradual easing from 2027 as the policy rate remains restrictive.

Norges Bank guidance turns more hawkish

"Norges Bank left its policy rate unchanged at 4.25% at its June meeting, as we and consensus expected. Its guidance was that “it will likely be necessary to raise the policy rate further at one of the forthcoming monetary policy meetings.” It also increased its policy rate projection (Figure 1)."

"The projection now implies a 25bp policy rate hike to 4.50% in Q3. However, the projection is not clear on whether Norges Bank is more likely to hike in August or September. The projection reaches a peak of 4.55% in Q4 2026 and Q1 2027, suggesting the possibility of a third hike this year."

"We bring forward our expectation of the next policy rate increase to August from September. This forecast change is for several reasons, including: 1) the upward revision to the policy rate projection, 2) continued concerns from policymakers about sticky inflation even after the May policy rate increase, 3) the note in the minutes that some policymakers argued in favour of raising the policy rate and 4) the May rate rise highlights the Bank’s willingness to move decisively following a hawkish policy rate projection."

"However, one risk to our forecast that could suggest a later policy rate rise is that the projections in the Monetary Policy Report were based on information in the period to 12 June, and energy prices have moved lower since then. However, Norges Bank said that the overall picture presented in the Reportwould not have been changed materially."

"Looking further ahead, we maintain our forecast of a 25bp policy rate cut in September 2027 and expect that Norges Bank will gradually lower its policy rate beyond that in the medium term. This is because we believe that at its current level or higher, Norges Bank’s policy rate is restrictive, and is therefore exerting downward pressure on economic activity and inflation."

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