"Based on the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised in March", says Governor Øystein Olsen.

The upswing in the Norwegian economy continued through autumn. Recently, higher infection rates and extensive containment measures have held back activity. Unemployment has edged higher but appears to remain lower than projected in Monetary Policy Report 4/21. Relaxations of containment measures will likely contribute to a continued economic upswing. Higher electricity prices have resulted in high consumer price inflation. Underlying inflation has risen more than expected and is now close to the inflation target.

Monetary policy is expansionary. In the Committee’s assessment, the objective of stabilising inflation around the target somewhat further out suggests that the policy rate should be raised towards a more normal level. A gradual normalisation of the policy rate is consistent with continued high employment. Higher interest rates will also help counter a build-up of financial imbalances.

In its discussion of the balance of risks, the Committee noted that while the Omicron variant appears to be less virulent than the Delta variant, there is still uncertainty about the further evolution of the pandemic. The Committee was also concerned with the risk of a potential rise in domestic price and wage inflation due to capacity constraints and persistent global price pressures.