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Investing.com - Norges Bank is expected to maintain its policy rate at 4.25% at next week’s meeting while signaling further cuts later this year, according to a forecast by Capital Economics.
The Norwegian central bank implemented its first rate cut since May 2020 at its last meeting, reducing the policy rate by 25 basis points to 4.25%. Governor Ida Wolden Bache indicated a "cautious normalisation" approach, with the bank stating that "if the economy evolves broadly as currently projected, the policy rate will be reduced further in the course of 2025."
Recent economic data shows encouraging signs, with strong industrial growth in Q2 and positive retail sales pointing to healthy household spending. The construction sector outlook appears particularly promising, potentially supporting the case for continued monetary policy normalization.
Inflation remains a concern for policymakers, with both headline and core inflation rates at around 3%, significantly above the 2% target. The Norwegian krone is trading weaker than the central bank’s previous assumptions, suggesting imported price pressures may be stronger than anticipated.
While investors are pricing in approximately a 25% chance of a rate cut next week, Capital Economics believes the probability is even lower, forecasting that Norges Bank will maintain its current rate while reiterating that "a restrictive monetary policy is still needed" before implementing two 25-basis-point cuts by year-end.
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