The upswing in the Norwegian economy continued through winter. The labour market is tight, and unemployment is lower than projected. Global inflation has continued to rise. Domestic prices have recently increased somewhat less than expected, but 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 further rise in the policy rate. Higher interest rates will ease the pressures in the Norwegian economy, but employment is expected to remain elevated. Uncertainties relating to the economic outlook and households’ response to higher interest rates warrant a gradual rise in the policy rate.

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

In its discussion of the balance of risks, the Committee noted that there is substantial uncertainty as to the potential economic impact of the war in Ukraine. There is a risk of a further acceleration in global inflation amid slowing growth. Policy rate expectations abroad have risen considerably, and it is uncertain how a rapid rise in policy rates will affect financial markets and trading partner activity. The Committee was also concerned with the risk of accelerating price and wage inflation in Norway. If there are prospects of persistently high inflation, the policy rate may be raised more quickly than indicated by the policy rate forecast in the March Report.