Norway’s central bank is sticking with one of the rich world’s most hawkish monetary policy stances, dashing investor hopes that it would advance plans for a first cut in borrowing costs as soon as this year.

In their decision in Oslo published on Thursday, officials preoccupied with the weakness of the kroner kept their deposit rate at 4.5%, the highest since December 2008, and declared that there’s little prospect of a reduction before the initial quarter of 2025.

Coming in the wake of the US Federal Reserve’s decision on Wednesday to start easing with a close-run half-point rate cut, Norway’s steady position contrasts with such peers who are loosening constriction on their economies as the global inflation shock fades.

“The policy rate will likely be kept at 4.5% to the end of the year,” governor Ida Wolden Bache said in a statement on Thursday. “We believe that there is a need to keep the policy rate at today’s level for a period ahead but that the time to ease monetary policy is approaching.”

Expectation that Norges Bank will be slower than its peers to normalise policy boosted the kroner, which strengthened about 1% to the strongest level against the euro in almost three weeks.

The kroner is the worst-performing G-10 currency this year, down more than 3% versus the dollar and around 4% against the euro, due to a sharp drop in demand for riskier assets in August along with falling oil prices.

Before the decision, investors observing a shifting environment towards global loosening had begun to price in a rate reduction as soon as December. Instead, Norges Bank is likely to be among the last advanced-world central banks to cut borrowing costs in the current cycle.

The Norwegian institution’s efforts to rein in price growth have been hampered primarily by the kroner. Officials warned that deeper declines for the currency could even require tighter policy.

“If the kroner depreciates further or capacity utilisation increases, wage and price inflation could remain elevated for longer,” they said. “A higher policy rate than currently envisaged may then be required.”

Core price growth has consistently undershot Norges Bank’s estimates, slowing for the 10th straight month in August, to 3.2%. A survey by Norges Bank also confirmed last week that the fossil-fuel-rich economy is likely to expand less than seen earlier, even as pressures in the labour market aren’t easing.

The central bank now expects the mainland economy to grow at a slower rate than previously projected, forecasting expansion of 0.6% this year and 1.1% in 2025. It sees both headline and underlying price growth remaining above its 2%-target at the end of its outlook horizon in 2027, at 2.4%.

  - Bloomberg