There is a continued need for an expansionary monetary policy. Interest rates abroad are low. There is still some spare capacity in the Norwegian economy. The outlook suggests that inflation will remain below 2.5% in the coming years.

The upturn in the Norwegian economy is continuing, and the output gap appears to be somewhat narrower than previously projected. Inflation is low, but a weaker krone than expected in September may lead to a faster rise in inflation than forecast earlier. As spare capacity is absorbed, wage growth is also likely to edge up.

On the whole, the changes in the outlook and the balance of risks imply a somewhat earlier increase in the key policy rate than projected in the September Report. Uncertainty surrounding the effects of monetary policy suggests a cautious approach to interest rate setting, also when it becomes appropriate to increase the key policy rate.

"The Executive Board's current assessment of the outlook and balance of risks suggests that the key policy rate will remain at today's level in the period ahead," says Governor Øystein Olsen.

The key policy rate in Monetary Policy Report 4/17 is forecast to remain at 0.5 percent in the period to autumn 2018, followed by a gradual increase.

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