The upturn in the Norwegian economy continues. Spare capacity is gradually diminishing, and capacity utilisation now appears to be close to a normal level. Underlying inflation is close to the 2 percent inflation target.

Overall, the outlook and the balance of risks imply a gradual interest rate increase in the years ahead. If the key policy rate is kept at the current level for too long, price and wage inflation may accelerate and financial imbalances build up further. That would increase the risk of a sharp economic downturn further out. Uncertainty surrounding the effects of higher interest rates suggests a cautious approach to interest rate setting.

The interest rate outlook is little changed from the June 2018 Monetary Policy Report. With a gradual interest rate increase, inflation is projected to be close to the target some years ahead, at the same time as unemployment remains low.

"The Executive Board's current assessment of the outlook and balance of risks suggests that the key policy rate will most likely be increased further in 2019 Q1", says Governor Øystein Olsen.

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