Norway holds policy rate steady at 4.5%, eyes cut by year-end

By Terje Solsvik

OSLO, May 8 (Reuters) - Norway's central bank kept interest rates on hold at a 17-year high of 4.50% on Thursday, as unanimously predicted by analysts, reflecting a resurgence of inflation that has prevented policy-makers from cutting borrowing costs.

"If the policy rate is lowered prematurely, prices may continue to rise rapidly," Norges Bank Deputy Governor Paal Longva said in a statement.

"The committee's current assessment of the outlook implies that the policy rate will most likely be reduced in the course of 2025," he added.

The Norwegian crown strengthened slightly to 11.71 against the euro EURNOK= by 0810 GMT, from 11.72 just before the announcement.

Norges Bank in a March policy reversal maintained its interest rate at 4.50%, the highest level since 2008, as an unexpected rise in consumer prices led the central bank to postpone long-planned monetary easing.

Meanwhile, a restrictive monetary policy is needed to bring inflation down to target within a reasonable time horizon, the central bank said on Thursday.

Norway's annual core inflation rate stood at 3.4% year-on-year in March, the latest available data showed, in line with expectations in a Reuters poll but well above the central bank's 2.0% target.

All 24 analysts in a Reuters poll had predicted that rates would stay unchanged on Thursday.

Norway's policy contrasts with steps taken by other Western central banks, most of which started cutting rates last year as growth slowed and inflation waned.

"We continue to believe that the first rate cut will be delayed until September," Handelsbanken wrote in a note to clients.

A majority of the analysts polled between April 30 and May 5 predicted a rate cut in the third quarter, followed by a second one in the final three months of the year to end 2025 at 4.0%.

"Trade barriers have become more extensive, and there is uncertainty about future trade policies. This may pull the interest rate outlook in different directions," Longva said.

The U.S. Federal Reserve on Wednesday kept its policy rate on hold, as did Sweden's Riksbank on Thursday, while analysts expect the Bank of England to cut borrowing costs later on Thursday.