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 fallen markedly from the peak, but the rapid rise in business costs is expected to restrain further disinflation.

“The Committee judges that a restrictive monetary policy is still needed to stabilise inflation around target, but that the time to begin easing monetary policy is soon approaching,” says Governor Ida Wolden Bache.

In its discussion, the Committee noted that activity in the Norwegian economy appears to be holding up better than previously projected. On the other hand, inflation has moved closer to target, and inflation pressures appear to have been slightly more subdued than previously assumed. The Committee does not want to restrict economic activity more than needed to bring inflation down to target within a reasonable time horizon.

The forecast in this Report implies a gradual reduction in the policy rate from 2025 Q1. The forecast is little changed relative to the September forecast but indicates a somewhat smaller rate reduction in the coming years. Unemployment will likely increase a little, albeit slightly less than projected in September. Inflation is projected to be slightly above 2 percent at the end of 2027.

There is substantial uncertainty about the outlook for both the global and Norwegian economy. The Committee was concerned with the risk of an increase in international trade barriers. Higher tariffs will likely dampen global growth, but the implications for price prospects in Norway are uncertain. The Committee also noted that inflation has slowed faster than projected over the past year. If prospects suggest that inflation will be lower or unemployment higher than currently projected, the policy rate may be lowered faster than currently envisaged. On the other hand, wage and price inflation could remain elevated for longer than projected, for example should the krone weaken or capacity utilisation increase. A higher policy rate than currently envisaged may then be required.

Norges Bank will hold a press conference following the monetary policy decision in January 2025.