OSLO (March 27): Norway's central bank kept interest rates on hold at a 17-year high of 4.5% on Thursday, in line with most forecasts, as an unexpected resurgence of inflation led policymakers to postpone their previously stated plan for a cut.

Norges Bank had said in January its policy rate would "likely be reduced" in March by 25 basis points and the governor last month stated the central bank was "approaching the time" for an initial cut.

But a majority of analysts polled by Reuters had expected the central bank to reverse course, and thus keep rates on hold, pointing to a jump in February's core inflation to 3.4% year-on-year from 2.8% in January, well above the 2% target.

"The committee's current assessment of the outlook implies that the policy rate will most likely be reduced in the course of 2025," Norges Bank said in a statement on Thursday.

The policy committee projected the interest rate would drop to 4% by the end of the year, against a previous plan for 3.75%.

There will also be "a gradual further decline over the next years", Norges Bank said.

The Norwegian crown strengthened to 11.34 against the euro by 0907 GMT, from 11.38 just before the announcement.

"Inflation has picked up and been markedly higher than expected. If the policy rate is lowered prematurely, prices may continue to rise rapidly. Therefore, we decided to leave the policy rate unchanged now," Governor Ida Wolden Bache said in the statement.

Unlike other Western central banks, most of which began easing policy last year as growth slowed and inflation declined, Norges Bank has maintained the benchmark rate at its highest level since 2008.

The central bank raised its prediction for core inflation in 2025 to 3.4% from 2.7% seen in December, its last forecast, and for 2026 to 2.9% from 2.7%.

Despite increasing economic uncertainty, Norwegian companies have revised growth expectations upwards for the first quarter of 2025 and said they expected stable growth in the second quarter, a central bank business survey showed last week.

Norges Bank now expects non-oil GDP, its favoured growth measure, to expand by 1.2% this year, down from 1.4% seen previously.

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