"Based on the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised further in June", says Governor Ida Wolden Bache.

Activity in the Norwegian economy has continued to rise after containment measures were lifted in winter. Employment has increased further, and capacity utilisation appears to be above a normal level. The war in Ukraine has led to heightened uncertainty about the economic outlook, but there are still prospects for a continued upswing in the Norwegian economy. Price and wage inflation has been higher than projected, and wage expectations have risen. Rising wage growth and imported goods inflation are expected to push up underlying inflation ahead.

Monetary policy is expansionary. In the Committee’s assessment, the objective of stabilising inflation around the target somewhat further out suggests a higher policy rate. Higher interest rates will ease the pressures in the Norwegian economy, but employment will likely remain elevated. Uncertainties relating to the economic outlook and households’ response to higher interest rates warrant a gradual rise in the policy rate.

In its discussion of the balance of risks, the Committee was concerned with the prospect that the war in Ukraine could result in weaker-than-expected global growth amid rising inflation. The Committee was also concerned with the risk of accelerating price and wage inflation as a result of capacity constraints in the economy and persistent global price pressures. If there are prospects of persistently high inflation, the policy rate may be raised more quickly. 

The policy rate forecast is higher than in the December Report and indicates a rise in the policy rate to around 2.5 percent at the end of 2023.