Norges Bank lowered its policy rate by a quarter point to 4.25% and said it could make another cut this year “if the economy evolves broadly as currently projected”.

The bank had kept its rate unchanged since December 2023 after hiking them in efforts to tame inflation.

Analysts had expected the bank to keep its rate unchanged until September.

Norges Bank governor Ida Wolden Bache said inflation had declined since its March monetary policy meeting.

“The inflation outlook for the coming year indicates lower inflation than previously expected,” she said.

“A cautious normalisation of the policy rate will pave the way for inflation to return to target without restricting the economy more than necessary.”

Core inflation – which excludes volatile energy prices – slowed to 2.8% in May.

While it is cooling, inflation remains above the central bank’s 2% target.

The rate cut comes as financial markets worry about the economic impact of US President Donald Trump’s tariffs and the conflict between Israel and Iran.

“The uncertainty surrounding the outlook is greater than normal,” Norges Bank said in a statement.

“An escalation of conflicts between countries and uncertainty about future trade policies may result in renewed financial market turbulence and could impact both Norwegian and international growth prospects,” it said.

“If the economy takes a different path than currently envisaged, the policy rate path may also differ from that implied by the forecast,” the bank added.