Norway’s central bank is committed to reducing consumer price inflation to its 2% target, Governor Ida Wolden Bache said in a speech, raising questions about potential interest rate cuts. Norges Bank, which manages monetary policy and promotes financial stability in Norway, had initiated an easing cycle in 2025, lowering its policy rate by 50 basis points to 4.0%. In December, it indicated intentions to gradually decrease borrowing costs this year and towards 2028, anticipating a decline in inflation. Norges Bank also operates Norway’s sovereign wealth fund.
However, Norway’s annual core inflation unexpectedly increased in January to 3.4% year-on-year, up from 3.1% in December. Analysts suggest this could compel the central bank to halt rate cuts or even increase borrowing costs. Economists surveyed by Reuters had predicted an average core inflation rate of 3.0% for January, while Norges Bank’s estimate was 2.9%. The higher-than-expected figure caused a rally in Norway’s currency against the euro.
“According to figures published this week, inflation increased in January and was higher than we had expected,” Bache stated in her annual address. “We will ensure that inflation is brought back to 2%.” While acknowledging expectations for continued moderate economic growth and increasing household purchasing power, Bache refrained from commenting on how the latest inflation data would influence the central bank’s interest rate forecasts. Norges Bank is scheduled to announce its next rate decision and long-term policy outlook on March 26.
Bache also mentioned plans to provide greater insight into the monetary policy committee’s discussions, without attributing specific viewpoints to individual members. Additionally, she expressed support for a periodic review of the central bank’s mandate but cautioned against incorporating goals such as wealth and income distribution or climate change into monetary policy. Furthermore, she noted that Norway’s $2.2 trillion sovereign wealth fund faces conflicting expectations regarding responsible investments both domestically and internationally.
