Norway's central bank cut its policy interest rate by 25 basis points to 4% today, as widely expected, and said it aims to cut again in the next 12 months but not by as much as previously planned.
The monetary policy committee had considered keeping the policy rate unchanged today but concluded unanimously that a rate cut was now appropriate, it added.
Norges Bank said that data since June indicated there was little spare capacity in the Norwegian economy and that inflation may remain high for slightly longer than previously expected.
"Therefore, we will probably not reduce the policy rate ahead as quickly as envisaged before summer," Governor Ida Wolden Bache said in a statement.
Norges Bank's fresh forecasts suggest one rate cut per year in the coming three years, it said, to a low of 3.25% in 2028.
"The committee has not taken a position at which meeting it could cut rates next," Bache told a press conference.
Handelsbanken predicted that Norges Bank will probably only cut twice in the coming years, to a low of 3.5% as wage growth and inflation could prevent a further reduction.
"Overall, today's move can best be described as a hawkish cut: Norges Bank lowered the policy rate now, while signalling that it will be a long time until the next reduction," Handelsbanken wrote in a note to clients.
The central bank's outlook now indicates that the next rate reduction will likely come in the third quarter of 2026, Sparebank 1's chief economist Elisabeth Holvik said.
In a surprise decision, Norges Bank cut its key interest rate in June by 25 basis points to 4.25%, the first reduction in more than five years, and said last month that it planned to cut borrowing costs again this year on milder consumer prices.
But recent data showed an increase in underlying August inflation and that the economy grew more than expected in the first half of the year. A central bank business survey, meanwhile, indicated a positive outlook for growth and investment, leading some to question the need for immediate rate cuts.
The bank reiterated the high level of uncertainty there was about future economic developments, and said it had given "special attention" to what it called "the unpredictable framework for international cooperation and trade".
"This creates uncertainty about the inflation and growth outlook for both the Norwegian and the international economy," it said.
Three quarters of economists, 23 out of 30, had expected the central bank to cut the key policy rate to 4% today, while seven forecast no change, a September 10-15 Reuters poll showed.
The US Federal Reserve last night reduced interest rates for the first time since December and indicated more cuts would follow.
The European Central Bank last week kept rates on hold as expected and maintained an upbeat view on growth and inflation, dampening expectations for any further cut in borrowing costs.
The Bank of England is also expected to keep UK rates steady at the conclusion of its meeting today.
