In Monetary Policy Report 1/21, which was published on 18 March, the policy rate forecast indicated a gradual rise from the latter half of 2021.

Economic developments have been largely in line with the projections in the March Report. Activity has picked up since spring 2020, but in recent months, stricter containment measures have restrained the recovery, and the number of furloughed workers has risen. Recently, infection rates have fallen back. The first phase of the Government’s plan for the reopening of society has been implemented, and much of the adult population in Norway is expected to be vaccinated by the end of summer. This suggests that economic activity will pick up through the year.

“In the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised in the latter half of 2021”, says Governor Øystein Olsen.

The Committee placed weight on the contribution of low interest rates to speeding up the return to more normal output and employment levels. This reduces the risk of unemployment becoming entrenched at a high level. Underlying inflation is still above the target, but the krone appreciation and prospects for moderate wage growth suggest that inflation will moderate ahead. The Committee also placed weight on the marked rise in house prices since spring 2020. A long period of low interest rates increases the risk of a build-up of financial imbalances.

The Committee judges that there is need for a continued expansionary monetary policy stance. There is still uncertainty surrounding the economic recovery ahead. When there are clear signs that economic conditions are normalising, it will again be appropriate to raise the policy rate gradually from the today’s level.