By Dominic Chopping

Norway's central bank cut its key policy rate to 4% Thursday but hinted that going forward it might not ease monetary policy as much as it previously expected.

Economists polled by The Wall Street Journal were divided ahead of the decision, with some expecting a quarter-point cut while a majority had tipped Norges Bank to remain on hold at 4.25%.

The central bank began easing monetary policy in June, bringing the rate down to 4.25% from 4.5%, and has long signaled a gradual further reduction to support economic activity.

However, economic growth in Norway has outperformed Norges Bank's forecasts so far this year, unemployment remains low and manufacturing output is close to capacity, at the same time that inflation is still far above the 2% target.

"Incoming data since June indicate that there is a little less spare capacity in the economy, and that inflation may remain elevated for a little longer than projected in June," Governor Ida Wolden Bache said.

"Therefore, we will probably not reduce the policy rate ahead as quickly as envisaged before summer."

Core inflation in the country eased over the spring, falling to 2.8% in May before hitting 3.1% in June, July and August.

In its statement Thursday, the central bank said inflation remains above target, but further easing over the next 12 months will probably be needed to allow for economic growth, though not at the rate previously expected.

"The job of bringing inflation back to target has not been completed, but a cautious easing of monetary policy will pave the way for returning inflation to target without restraining the economy more than needed," Bache added.

Policymakers now expect one rate cut a year in the coming three years, bringing the rate down to slightly more than 3% toward the end of 2028.

Its previous monetary policy report indicated a rate of about 3% toward the end of 2028.

Inflation is still projected to move down close to the 2% target in 2028.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

September 18, 2025 04:43 ET (08:43 GMT)

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