“Based on our current assessment of the outlook, the policy rate will likely be kept at the current level for some time ahead,” says Governor Ida Wolden Bache.

The policy rate has been raised significantly to tackle high inflation, and since December 2023 the policy rate has been held at 4.5 percent. The interest rate has contributed to cooling down the Norwegian economy, and growth is now low. A high share of the population is employed, but unemployment has edged up. Inflation has fallen back considerably from the peak, but the rapid rise in business costs will likely slow further disinflation.

In its deliberations on the monetary policy trade-offs, the Committee was concerned with the possibility that if the policy rate is lowered prematurely, inflation could remain above target for too long. On the other hand, an overly tight monetary policy could restrain the economy more than needed. Since the June Report, inflation has been lower than projected, and unemployment is a little higher than expected. International policy rate expectations have fallen. On the other hand, the krone has depreciated and is weaker than assumed. The Committee judges that a tight monetary policy stance will likely be needed for some time ahead to bring inflation down to target within a reasonable time horizon.

There is uncertainty about future economic developments. In its discussion of the balance of risks, the Committee was particularly concerned with developments in the krone exchange rate and the potential implications for inflation. If there are prospects that inflation will remain higher for longer than previously projected, the policy rate may be set higher. If there is a more pronounced slowdown in the Norwegian economy or prospects suggest that inflation will return to target faster than projected in June, the policy rate may be lowered earlier than previously envisaged. The Committee will have received more information about economic developments ahead of its next monetary policy meeting in September, when new forecasts will be presented.

New forecasts have not been prepared for this monetary policy meeting. Monetary Policy Report 3/24 will be published along with the monetary policy decision on 19 September 2024.