“The policy rate will likely be kept at 4.5 percent to the end of the year,” says Governor Ida Wolden Bache.

In recent years, the policy rate has been raised significantly to tackle high inflation. 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 to dampening inflation. Unemployment has edged up from a low level. Inflation has declined markedly from its peak, but underlying inflation has not declined to the same extent. Moreover, the rapid rise in business costs and the krone depreciation are expected to restrain further disinflation. 

Since the June Report, inflation has been lower than expected. International policy rates appear to be coming down faster. On the other hand, the krone has depreciated. Developments in the Norwegian labour market have been broadly in line with the projections in the June Report.

The Committee judges that a restrictive monetary policy is still needed to bring inflation down to target within a reasonable time horizon. The Committee is 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 contract the economy more than needed.

“We believe that there is a need to keep the policy rate at today’s level for a period ahead but that the time to ease monetary policy is approaching,” says Governor Ida Wolden Bache.

The policy rate forecast in this Report implies that the policy rate will remain at 4.5 percent to the end of 2024 before being gradually reduced from 2025 Q1. The forecast is little changed from the June Report but indicates a slightly faster decline in the policy rate through 2025. Economic growth is set to pick up slightly in the years ahead. Unemployment will likely edge up. Inflation is projected to approach 2 percent towards the end of 2027.

There is uncertainty about future developments in the Norwegian economy. In its discussion, the Committee noted in particular that inflation has fallen markedly and been lower than projected for a time. Underlying inflationary pressures may be weaker than currently assumed. If prospects suggest that inflation will return to target faster or there is a more pronounced slowdown in the Norwegian economy, the policy rate may be lowered faster than currently envisaged. On the other hand, the krone has depreciated again. If the krone depreciates further or capacity utilisation increases, wage and price inflation could remain elevated for longer. A higher policy rate than currently envisaged may then be required.

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