The upturn in the Norwegian economy appears to be continuing. Spare capacity has gradually diminished, and capacity utilisation seems to be close to a normal level. Underlying inflation is close to the inflation target of 2 percent.

If the policy rate is kept at the current level for a long time, price and wage inflation may accelerate and financial imbalances build up. That would increase the risk of a sharp economic downturn further out. Raising the policy rate rapidly ahead could stifle the upturn and lead to higher unemployment and inflation that is too low. Uncertainty surrounding the effects of higher interest rates suggests a cautious approach to interest rate setting.

Overall, the outlook and the balance of risks imply a gradual interest rate increase in the years ahead. The policy rate forecast is little changed, but the fall in oil prices and weaker global growth prospects imply a slightly slower rate rise than in the September Report. Inflation is projected to remain close to target in the coming years, at the same time as unemployment remains low. The policy rate path will be adjusted in response to changes in economic prospects.

"Our current assessment of the outlook and the balance of risks suggest that the policy rate will most likely be raised in March 2019", says Governor Øystein Olsen.