Inflation has been considerably higher than projected and markedly above the 2 percent target. Activity in the Norwegian economy is high, with little spare capacity. Unemployment has fallen a little more than expected and is at a very low level.

“A markedly higher policy rate is needed to ease the pressures in the Norwegian economy and to bring inflation down towards the target”, says Governor Ida Wolden Bache.

The rise in prices has been broad-based in recent months and may entail that inflation will remain high for longer than expected earlier. This suggests a faster rise in the policy rate than forecast in June. A faster rate rise now will reduce the risk of inflation becoming entrenched at a high level and the need for a sharper tightening of monetary policy further out.

The Committee was concerned with the large degree of uncertainty surrounding the outlook. There is a risk that little spare capacity in the Norwegian economy and persistent global price pressures will lead to a further acceleration in price inflation. On the other hand, the rise in interest rates and high inflation may cool down the housing market and curb household consumption faster than currently envisaged. There is also a risk of a sharper slowdown in global growth.

Governor Ida Wolden Bache will give a speech on the outlook for the Norwegian economy and the policy rate decision in Arendal, on 18 August at 1:00 pm. The event will be livestreamed (in Norwegian) and the speech will be published on the Norges Bank website.