Norges Bank decided to keep its policy rate unchanged at 4.25% in August, despite recent softer CPI-ATE inflation data, according to Nomura economists [1]. The central bank maintained the possibility of a further rate hike, with the Governor stating, 'it is too early to conclude that the inflation outlook has changed materially. It may thus still become necessary to raise the policy rate' [1].
Nomura notes that if not for the two softer inflation prints, Norges Bank would likely have raised its policy rate at this meeting. At the June meeting, the bank's policy rate projection indicated about a 50% chance of a hike in August, with the projection peaking at 4.55% in Q4 2026 and even suggesting the possibility of a third hike this year [1].
Looking ahead, Nomura forecasts a slower rate of CPI-ATE inflation than Norges Bank for the remainder of the year and into 2027, but still expects inflation to rise again and average 2.9% year-on-year in the second half of 2026 [1]. The economists have pushed their forecast for a second 2026 rate hike to the November meeting, interpreting the central bank's latest statement as indicating that a second rate rise this year is now less likely than it appeared in June, though still the most probable scenario unless future inflation data provides more confidence in the disinflation process [1].
Despite encouraging inflation data in June and July, Nomura believes it is too early for Norges Bank to consider rate cuts in the coming months, as underlying inflation remains above target. They do not expect a rate cut until September 2027, emphasizing that policymakers will want to be confident that inflation is returning to target before reducing rates [1].
CONCLUSION
Norges Bank's decision to hold rates reflects caution amid slower disinflation, with the possibility of further hikes remaining on the table. Market participants should not expect rate cuts before September 2027, as policymakers prioritize ensuring inflation is firmly on track to target.