"The level of uncertainty surrounding developments in Europe is now higher than it has been for some time. Although domestic developments have been slightly stronger than expected, the turbulence and weak growth prospects abroad suggest the key policy rate should be kept on hold," says Governor Øystein Olsen.

Economic growth among Norway's trading partners is expected to be even lower than previously projected. Central bank key rates are close to zero in many countries and the expected upward shift in interest rates has been deferred further into the future.

Growth in the Norwegian economy has been slightly stronger than expected so far this year. Unemployment is low and wage growth may turn out to be somewhat higher than previously projected. A strong krone and weak growth abroad are still holding down inflation at a low level, but developments in the Norwegian economy suggest that inflation will drift up further ahead.

"The analyses in this Monetary Policy Report imply a key policy rate at about today's level towards the end of 2012. Thereafter, the key policy rate is projected to rise gradually towards a more normal level. However, there is considerable uncertainty surrounding economic developments ahead," underlines the Governor.

At the meeting, the Executive Board decided that the key policy rate should be in the interval 1% – 2% until the publication of the next Report on 31 October 2012, unless the Norwegian economy is exposed to new major shocks.

For further information, see "The Executive Board's assessment" in the June 2012 Monetary Policy Report.

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