The Norges Bank holds, but confirms another hike is coming
The Norges Bank kept the policy rate unchanged at 4.25%, against our off-consensus call for a June hike.
Our timing was early, but the policy direction confirms our view that another increase will likely be necessary at one of the forthcoming meetings, with the new rate path slightly higher than in March, standing just above 4.50% at year-end.
This is an obvious hawkish hold. The Norges Bank judges that inflation remains too high and that rapid business-cost growth will keep price pressures elevated. External price impulses are slightly stronger than previously projected, while wage-growth expectations for 2027 have risen.
The Bank also warns that prolonged inflation could become embedded in household and corporate behaviour, making it harder to return inflation to target.
The reduction in the 2026 CPI-ATE forecast from 3.3% to 3.2% does not alter that conclusion. May CPI-ATE stood at 3.4%, while the Bank expects underlying inflation to remain above 3% through 2026. The near-term inflation profile is little changed, and the Bank’s modelling shows that inflation would be slightly higher than projected in March under an unchanged rate path.
The stronger inflation and cost outlook, therefore, explains why the rate path has moved higher despite today’s hold.
The Committee instead chose to wait simply because the real economy has softened. Mainland growth has been weaker than projected; capacity utilisation is close to normal but drifting lower; unemployment has risen, and businesses report that recruitment has become easier. The Norges Bank does not want to restrict the economy more than necessary, particularly given that the proposed US–Iran agreement could reopen the Strait of Hormuz and reduce energy-related inflationary pressures.
All told, then, this decision changes the timing, not the destination. The Norges Bank now projects a policy rate just above 4.50% at the end of 2026 and assumes the krone will appreciate slightly, as its near-term path remains above market pricing.
Another hike is therefore likely at one of the next meetings, with August or September the most plausible windows.
For NOK, the higher rate path matters more than the unchanged decision. Any initial krone weakness should be limited by the explicit signal that further tightening is coming. However, a possible ECB hike in July should restore some relative-rate support for EUR, consistent with our expectation that any renewed NOK strength will be strongest around an eventual Norges Bank hike rather than sustained across the full forecast horizon.