Norges Bank: Disinflation slows rate path – Nomura

Nomura economists note Norges Bank kept its policy rate at 4.25% in August despite softer CPI-ATE inflation. The bank still flags a possible further hike, but they now expect a November move, with risks tilted to no additional increase and no rate cuts projected until September 2027.

Second 2026 hike pushed to November

"Despite the unexpected underlying inflation slowdown, the Governor’s guidance today was that “it is too early to conclude that the inflation outlook has changed materially. It may thus still become necessary to raise the policy rate”."

"If not for the two softer inflation prints, we believe Norges Bank would have raised its policy rate today. At Norges Bank’s June meeting, its policy rate projection suggested around a 50% chance of a hike in August, with the projection reaching a peak of 4.55% in Q4 2026, even suggesting the possibility of a third hike this year."

"We forecast a slower rate of CPI-ATE inflation than Norges Bank for the rest of the year and in 2027. However, we still expect the rate to rise again and average 2.9% y-o-y in H2 2026."

"We push out our forecast for a second 2026 rate hike from Norges Bank to the November meeting. The wording in today’s statement suggests to us that a second rate rise this year is now less likely than it looked in June, but still the most probable scenario unless future inflation prints give policymakers more confidence in the disinflation process."

"Despite the encouraging inflation data in June and July, we still think it is too early for Norges Bank to start talking about rate cuts in the next few months, as underlying inflation remains above target. We believe that after struggling with sticky inflation for the past few years, policymakers will want to be confident that inflation is returning to target before reducing rates, and we do not expect a rate cut until September 2027."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)