Norges Bank cuts by 25bps to 4.25% (prev. 4.50%), unexpected; "The economic outlook is uncertain, but if the economy evolves broadly as currently projected, the policy rate will be reduced further in the course of 2025"

Inflation

• “Inflation has declined since the monetary policy meeting in March, and the inflation outlook for the coming year indicates lower inflation than previously expected. A cautious normalisation of the policy rate will pave the way for inflation to return to target without restricting the economy more than necessary,” says Governor Ida Wolden Bache.

Economy

• "The tightening of monetary policy has contributed to cooling down the Norwegian economy and to dampening inflation. Inflation has fallen in recent years but is still above target. At the same time, unemployment has increased somewhat from a low level. The output gap has narrowed, and output is now close to potential."


• An escalation of conflicts between countries and uncertainty about future trade policies may result in renewed financial market turbulence and could impact both Norwegian and international growth prospects.

Rate

• "The Committee judges that a restrictive monetary policy is still needed but that it is now appropriate to begin a cautious normalisation of the policy rate."

MPR

• Q3-2025 4.21% (prev. 4.38%), Q4-2025 3.98% (prev. 4.21%), Q1-2026 3.81% (prev. 3.99%), Q2-2026 3.62% (prev. 3.77%)

Reaction details (09:11)

• EUR/NOK spiked higher from 11.4810 to just over 11.6200 on the surprise cut and dovish statement/forecasts.

Analysis details (09:11)

• The surprise cut (just 3/26 respondents to the Reuters survey forecast a cut) sparked immediate weakness in the NOK. A move that was amplified by the accompanying verbal guidance towards more cuts this year. Interestingly, while the language on cuts is caveated to be contingent on the economy developing as projected, the wording is firm in saying the "policy rate will be reduced further".


• On this, the Q4-2025 MPR forecast is 3.98% (prev. 4.21%); this leaves the door open to two more cuts in 2025, though is heavily skewed to just one. As a reminder, the MPR from March also kept the option open to two cuts and was also skewed towards just one.


• Overall, a surprise dovish cut from the Norges Bank.

19 Jun 2025 - 09:00- Fixed IncomeImportant- Source: Newswires