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Norges Bank maintained its policy rate last week, as the interest rate trajectory revised in December does not suggest an immediate cut. While a reduction is anticipated this year, specifics on timing were not disclosed, with projections indicating smaller cuts until the end of 2027.
The Bank’s reasoning is based on rising inflation rates that exceeded expectations. Premature rate cuts could fuel further price increases, making the Bank cautious in its approach.
Interest Rate Path Revised Amid Global Uncertainty
The revised interest rate path reflects an increase of around 25 basis points. Norges Bank acknowledges uncertainty due to trade conflicts and potential tariffs, impacting inflation and growth estimations.
It is predicted that Norges Bank might not lower rates until June when more inflation data will be available. In the interim, the krone is expected to remain stable with a slight upward trend.
With the guidance unchanged for now, the forward curve has responded modestly. Pricing towards June remains fairly anchored, suggesting traders are not anticipating a dovish surprise in the immediate term. That said, the door for easing is still open later in the year—just not imminently. What becomes clear from last week’s update is that Norges Bank is choosing patience, not hesitation. They are balancing between allowing inflation to ease further and avoiding a premature pivot that could work against the downward movement in price pressures.
External Influences And Inflation Outlook
The December rate path revision, notable for its 25-basis point upward nudge, indicated more concern around persistent inflationary risks than prior projections had factored in. It’s not just domestic variables weighing here. External forces—trade tensions and uncertainty around tariffs—are keeping policymakers cautious. These global inputs aren’t just hypothetical risks. They filter directly into import prices and, more broadly, wage expectations, especially in an already tight labour market.
Bache and the rest of the Committee don’t want to find themselves walking back a cut. That’s the context traders need to keep in mind. With hikes off the table and cuts temporarily shelved, the yield story becomes about relative stability, interrupted only if inflation delivers a marked surprise.
That has implications for how we think about front-end positioning. It doesn’t favour fast-paced directional bets. In fact, keeping trades flexible over the coming weeks could be advantageous. The curve’s pricing implies a slow progression toward lower rates, and any reset in expectations likely requires a CPI read that clearly diverges from the March baseline.
From a currency-volatility perspective, the krone’s expected to hold steady in the near term. There may even be gentle appreciation due to carry support. But the real shift in rates pricing won’t come until the June meeting draws closer and inflation’s next clear signal arrives. We should remain cautious about leaning too heavily into rate cut speculation before that.
The way forward demands a watchful approach—monitoring headline prints and the external price pulse closely. Inflation will dictate the near-term trajectory, while real-economy indicators like unemployment and consumption tell us how long the terminal rate might persist. Patience matters more than conviction right now.
