Norway’s strong economy didn’t keep its central bank from lowering interest rates again on Thursday. The board ignored economists’ predictions that no rate cut was needed to prod more spending, and opted to lower Norway’s policy rate by another quarter-point.
The monetary policy committee at Norway’s central bank here in Oslo surprised many by lowering its policy rate to 4 percent on Thursday. PHOTO: Norges Bank
The second rate cut in three months surprised many, especially those worried that lower interest rates can prompt higher inflation. Jeanette Fjære-Lindkjenn, a senior economist at DNB Carnegie, and Nordea’s chief economist Kjetil Olsen were among those who hadn’t expected (and even argued against) another rate reduction on Thursday.
“Those who think we’ll see a stream of quick rate cuts can be disappointed,” Fjære-Lindkjenn told newspaper Dagens Næringsliv (DN) late last week. She and her colleagues expected a postponement of any rate cut, since there are signs of a labour shortage in several areas and Norway’s currency, the krone, has remained weak against the US dollar and the euro. The dollar has weakened, though, and the US Federal Reserve had also lowered rates on Wednesday.
“We have an economy that’s operating at or even over normal capacity, prospects are good because growth outlooks are good and purchasing power is on its way up,” Olsen told DN. He added that the construction business was also rising and inflation is “stubborn,” so “it’s not easy to find arguments for why they (the central bank’s monetary policy committee) should lower interest rates.”
Prime Minister Jonas Gahr Støre has been a popular man on the campaign trail, getting lots of requests for selfies from seemingly happy Norwegians. Despite attempts by opposition politicians to stress economic woes in Norway, several recent studies and their statistics suggest the Norwegian economy is strong and still growing. While wages have risen, interest rates are declining, suggesting better times for many households. PHOTO: Arbeiderpartiet
Norwegian media have also been full in recent weeks of stories about how well the country’s economy has been performing, despite all the gloom and doom prospects presented by opposition parties during the recent election campaign. They stressed how some Norwegian households are still struggling despite strong wage growth, that high prices at the grocery stores keep rising and that taxes remain far too high. State statistics bureau SSB (Statistics Norway), however, reported ongoing economic growth and predicts more wage growth in most all branches. SSB reported recently that despite a slight rise in unemployment, the jobless rate remains relatively low and employers often lack workers.
The opposition’s “prediction that the Norwegian economy is heading into the gutters doesn’t hold,” said another leading economist in Norway, Harald Magnus Adreassen, just before the election. More than 160,000 new jobs were created during the past four years, 80 percent of them in the private sector. The weak krone has also boosted income on exports of oil, always sold in US dollars, since exporters have been getting more kroner for the dollar.
Central bank chief Ida Wolden Bache nonetheless announced another quarter-point decline Norway’s policy rate, from 4.25- to 4 percent, and said that interest rates may fall further during the next year.
“The job of bringing inflation back to target (by keeping rates high) has not been completed,” Bache said on Thursday, “but a cautious easing of monetary policy will pave the way for returning inflation to target without restraining the economy more than needed.”
Central Bank boss Ida Wolden Bache and her monetary policy committee had more good news for Norwegian borrowers. PHOTO: Norges Bank/Nils Stian Aasheim
Her committee’s “restrictive” monetary policy stance “has contributed to cooling down the Norwegian economy and to dampening inflation in recent years,” she added. Inflation has fallen, but is still above the target of just 2 percent. The committee thinks restrictive monetary policy is still needed, especially since as Bache herself noted, growth in the Norwegian economy “seems to be stronger in 2025 than previously projected.”
Even though the central bank is lowering the policy rate for the second time this summer, Bache stresses a steady hand and said she and her colleagues “do not envisage a large decrease” in the policy rate.
The krone, meanwhile, had already strengthened before the interest rate announcement came Thursday morning. A US dollar that cost NOK 10.2 last week and more than NOK 11 last winter, cost NOK 9.73 before the rate cut came. It weakened a bit right after the interest rate announcement, with a dollar costing NOK 9.89 by Thursday evening.
Norwegian banks, meanwhile, have been urged to lower their own rates more quickly than they have in recent months. The reduction that came in June wasn’t applied to mortgage payments until August, while interest paid on deposits dropped more swiftly. Norway’s biggest bank, DNB, came under the most criticism for being so slow to lower the rates on home loans.
NewsinEnglish.no/Nina Berglund
