Norges Bank Cuts Policy Rate to 4.25 Percent and Outlines Path for Further Reductions in 2025

Norges Bank Cuts Policy Rate to 4.25 Percent and Outlines Path for Further Reductions in 2025

(IN BRIEF) On 18 June 2025, Norges Bank’s Monetary Policy and Financial Stability Committee reduced the policy rate from 4.50 percent to 4.25 percent in a unanimous decision, marking the beginning of a cautious normalization after a tightening cycle that began in late 2023. Governor Ida Wolden Bache highlighted that inflation has fallen faster than expected and is now projected to be lower over the next year, enabling rate cuts without unduly restraining growth. The Committee expects the rate to fall below 4 percent by year-end 2025 and to about 3 percent by late 2028, with mortgage rates easing from 5.6 percent to 4.6 percent over the same period. While inflation remains above target and unemployment has crept upward, economic output is close to potential, and the path forward will depend on global risks such as geopolitical tensions and trade uncertainties. The next rate decision is scheduled for 14 August at Arendalsuka.

(PRESS RELEASE) OSLO, 19-Jun-2025 — /EuropaWire/ — On 18 June 2025, the Monetary Policy and Financial Stability Committee of Norges Bank voted unanimously to lower the policy rate from 4.50 percent to 4.25 percent. While acknowledging continued uncertainty in the economic outlook, the Committee indicated that, provided developments align with current projections, further rate cuts are likely during 2025.

Governor Ida Wolden Bache noted that inflation has eased since the March meeting and is now expected to be lower over the coming year than previously forecast. “A careful return to more normal policy settings will allow inflation to drift back toward our 2 percent target without unnecessarily hampering economic growth,” she said.

Since December 2023, the policy rate had remained at 4.50 percent following a series of significant increases aimed at reining in high price pressures. These tightening measures have cooled domestic demand and contributed to a decline in inflation, which, although down from recent highs, still exceeds target. Meanwhile, unemployment has edged up from multi-decade lows, the output gap has closed, and overall production now sits close to potential.

Looking ahead, Norges Bank projects the policy rate to dip just below 4 percent by the end of 2025 and to about 3 percent by late 2028—only marginally different from the March forecast, with slightly lower near-term rates and marginally higher rates further out. Registered unemployment is expected to rise modestly toward its pre-pandemic average, and inflation is forecast to ease to around 2 percent by 2028.

“The average residential mortgage rate is projected to fall from today’s 5.6 percent to roughly 4.6 percent by 2028,” Governor Bache added, emphasizing that rates are unlikely to return to the ultra-low levels seen before the pandemic.

The Committee underscored that uncertainty around global conflicts, trade policies, and potential financial-market disruptions remains elevated. Should economic conditions diverge from current forecasts—either via more persistent inflation or a sharper rise in unemployment—the policy trajectory will be adjusted accordingly. “Our mandate is clear: we will complete the task of restoring inflation to 2 percent,” Governor Bache affirmed.

Norges Bank’s next policy decision will be announced on 14 August during an event at Arendalsuka.

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SOURCE: NORGES BANK