Norway's central bank governor pledges to bring inflation down

• Core inflation rose to 3.4% year-on-year in January, surpassing economists' average prediction of 3.0% and triggering a rally in Norway's currency against the euro
• Norges Bank began an easing cycle in 2025 with a 50-basis-point cut to 4.0%, but the inflation surprise may force the bank to halt cuts or even raise rates
• The central bank's next rate decision is scheduled for March 26, with Governor Ida Wolden Bache warning that 'the outlook can change abruptly' and making no promises about future policy rates

Summary: Norway's Central Bank Pledges to Bring Inflation Down

Key Developments:

Norway's central bank governor, Ida Wolden Bache, reaffirmed commitment to reducing inflation to the 2% target, signaling potential pause in rate cuts following unexpectedly high inflation data.

Critical Figures:

• Core inflation: Accelerated to 3.4% year-on-year in January, up from 3.1% in December
• Market expectations: Economists predicted 3.0%; Norges Bank estimated 2.9%
• Policy rate: Currently at 4.0% after 50 basis points in cuts during the 2025 easing cycle
• Sovereign wealth fund: $2.2 trillion in assets

Monetary Policy Outlook:

Norges Bank began cutting rates in 2025 and previously planned to gradually reduce borrowing costs through 2028. However, the above-forecast inflation reading has cast doubt on further cuts, with analysts suggesting the bank may halt easing or potentially raise rates. The governor cautioned that "the outlook can change abruptly" and made no promises about future rate decisions.

Market Impact:

The higher-than-expected inflation data triggered a rally in Norway's currency against the euro, reflecting market expectations for a more hawkish policy stance.

Next Steps:

• Norges Bank's next rate decision and long-term policy outlook scheduled for March 26
• Central bank will begin providing more detailed insights into monetary policy committee discussions this year
• Governor supported periodic reviews of the bank's mandate but warned against incorporating wealth distribution or climate goals into monetary policy

The unexpected inflation acceleration represents a significant challenge to Norway's monetary easing plans and highlights ongoing inflationary pressures in the Norwegian economy.