Norges Bank Keeps Interest Rates Unchanged

Key Takeaways

• Norges Bank maintains its main interest rate at 4.5%.
• Governor Ida Wolden Bache emphasizes that inflation remains too high.
• Interest rates are expected to remain elevated for an extended period.

Interest Rate Decision

Norges Bank's decision to keep the interest rate unchanged at 4.5% was anticipated by the market, with swaps indicating only a 4% chance of a rate hike prior to the meeting. This was an interim meeting, and no new projections or rate paths were published.

The tone of the meeting was hawkish, aligning with the recent actions of the Riksbank, which raised rates the previous day. Governor Bache stated that inflation is still too high and that interest rates may need to be maintained at elevated levels for some time. The bank remains prepared to raise rates if necessary to achieve the inflation target of 2%.

Current Economic Context

As of September, inflation in Norway stands at 3.4%, with a peak of over 7% reached in 2022. Norges Bank has raised rates by a total of 50 basis points this year, with the most recent hike of 25 basis points occurring in September. Core inflation has stabilized around 3% for the past two years, and unemployment is at multi-year lows.

The krone has strengthened significantly, currently at its highest level against the euro in four years, which mitigates the risk of imported inflation. However, the economy is experiencing a slowdown due to higher borrowing costs, and falling crude oil prices could negatively impact the Norwegian economy.

Market Expectations

Before the decision, the market was pricing in approximately 9 basis points of rate hikes for December, down from 16 basis points a week earlier. Most economists believe that 4.5% is the peak of the current cycle, with expectations for the first rate cut in Q4 2027. However, Nordea takes a more cautious stance, predicting no cuts before 2028. If oil and gas prices exert greater downward pressure, interest rate cuts could potentially occur in the latter half of 2027.

Norway's approach contrasts with other central banks, such as the Bank of Sweden and the Reserve Bank of Australia, which have recently raised interest rates. Since the start of 2026, there has been a strong correlation between the NOK and crude oil prices, with monetary effects becoming more pronounced after 2024. It appears that interest rates may have peaked, while hikes could still occur in the Eurozone and the US. A decline in oil prices towards $80 could lead to a rebound in USDNOK towards 9.60.