Norway's Central Bank Chief Commits to Reducing Inflation to 2%

Norway's Inflation Control Strategy

OSLO, Feb 12 (Reuters) - Norway's central bank is determined to bring consumer price inflation down to its 2% target, its governor said in a speech on Thursday, casting doubt on the prospect of further interest rate reductions.

Norges Bank in 2025 began an easing cycle, cutting its policy rate by 50 basis points to 4.0%, and said in December it aimed to slowly reduce borrowing costs this year and towards 2028 as inflation was expected to decline.

But Norway's annual core inflation accelerated unexpectedly in January to 3.4% year-on-year from 3.1% in December, which analysts said could force the central bank to call off its rate cuts, or even raise borrowing costs.

'HIGHER THAN WE HAD EXPECTED'

Economists polled by Reuters had on average predicted that core inflation would ease to 3.0% in January, while Norges Bank's estimate stood at 2.9%, and the above-forecast reading triggered a rally in Norway's currency against the euro.

Current Inflation Trends

"According to figures published this week, inflation increased in January and was higher than we had expected," Norges Bank Governor Ida Wolden Bache said in her annual speech on Thursday to government and business leaders.

"We will ensure that inflation is brought back to 2%," she said.

Bache said the Norwegian economy's moderate upturn was expected to continue and that household purchasing power would continue to grow, but did not say how the latest inflation data would impact the central bank's interest rate forecasts.

"These past years have reminded us that the outlook can change abruptly. That is why we do not make any promises about the policy rate," she said.

Norges Bank is due to present its next rate decision and long-term policy outlook on March 26.

Future Monetary Policy Insights

In her speech, Bache said Norges Bank will this year begin to provide more insights into its monetary policy committee's discussions, but without attributing specific views to each of its five members.

"The goal is to provide more nuances and details than today," she said.

Sovereign Wealth Fund Challenges

Bache said she supported a Finance Ministry plan for a periodical review of the central bank's mandate, but warned against including goals such as wealth and income distribution or climate change in monetary policy.

Elsewhere, Bache said Norway's $2.2 trillion sovereign wealth fund, which is operated by a unit of the central bank, faced conflicting expectations at home and abroad on responsible investments.

(Reporting by Terje Solsvik; editing by Barbara Lewis)