“The policy rate will likely need to be maintained at the current level for some time ahead in order to bring inflation back to the 2 percent target within a reasonable time horizon”, says Governor Ida Wolden Bache.

Monetary policy is having a tightening effect, and growth in the Norwegian economy is low. Price inflation is slowing but is still markedly above target. Business costs have increased sharply over the past years, and high wage growth and the krone depreciation through 2023 will contribute to keeping inflation elevated ahead.

Since the December 2023 Monetary Policy Report, activity in the Norwegian economy has been higher than projected, and price inflation has been lower than projected. In its assessment of the interest rate outlook, the Committee was concerned with the possibility that if the policy rate is lowered prematurely, inflation could remain high, among other things, because the krone might then weaken. On the other hand, an overly tight monetary policy could restrain the economy more than needed. The Committee judges that a policy rate path broadly consistent with the forecast in the previous Report provides a reasonable trade-off between the objectives of monetary policy.

The current forecast indicates that the policy rate will continue to lie at 4.5 percent in the period to autumn before gradually moving down. Economic growth is projected to remain low through the first half of 2024 before picking up. Unemployment will likely edge up, but a little less than anticipated in December. Inflation is projected to slow somewhat faster in 2024 than projected earlier and to approach 2 percent towards the end of 2027.

There is uncertainty about future developments in the Norwegian economy. In its discussion of the balance of risks, the Committee was concerned with the wide differences across industries, and their effect on the economic outlook. If cost inflation remains elevated or the krone turns out to be weaker than projected, inflation may remain high for longer than currently projected. In that case, the Committee is prepared to raise the policy rate again. If there is a more pronounced slowdown in the Norwegian economy or inflation declines more rapidly, the policy rate may be lowered earlier than currently envisaged.

Norges Bank will hold a press conference following the monetary policy decision in May.