- Decision
- Maintain
- Rate change
- 0 bps
- policy rate
- 4.5%
Norges Bank’s Monetary Policy and Financial Stability Committee left the policy rate at 4.5 percent at its 7 May decision, judging that monetary conditions must remain restrictive because inflation, while “markedly” off its peak, is still above the 2 percent target and could reignite if easing comes too soon. The rate has stood at 4.5 percent since its last increase in December 2023. The accompanying operational corridor remains set with an overnight lending rate of 5.5 percent and a reserve rate of 3.5 percent. Domestically, the output gap has closed, activity is near potential and unemployment has inched higher from low levels, supporting the view that previous tightening is cooling demand and curbing price pressures. Externally, the krone has weakened more than assumed amid a softer global growth outlook, falling oil prices and the prospect of greater policy easing by key trading partners, while rising trade barriers introduce additional uncertainty. Although the Committee sees greater-than-usual risks and notes that trade policy developments could push rates either way, its current assessment is that the policy rate will “most likely” be lowered sometime during 2025, with incoming data ahead of the June meeting and the 19 June Monetary Policy Report set to guide the path.
Rate evolution
Over the period, Norges Bank first cut the policy rate from 4.50% to 4.00% in mid-2025, then paused before raising it to 4.25% in May 2026, holding it in June and August and returning it to 4.50% in September. The initial easing reflected slowing inflation, including lower inflation excluding energy prices, and higher unemployment pointing to more spare capacity, while through late 2025 Norges Bank kept policy restrictive as inflation remained above target, growth appeared firmer than assumed and krone depreciation lifted inflation prospects amid trade and geopolitical uncertainty.
By May 2026, unexpectedly high inflation, stronger wage growth prospects and external price pressures linked to the war in the Middle East had shifted guidance from cuts to tightening and then a rate increase, while on 18 June Norges Bank held the policy rate at 4.25%, citing consumer price inflation of 3.1%, higher imported goods inflation and stronger wage and external price pressures, and signalled a likely increase at one of the forthcoming meetings. On 12 August, it again held the rate at 4.25% after inflation slowed more than projected, with July 12-month consumer price inflation at 3.0% and inflation adjusted for tax changes and excluding energy products at 2.7%, judging that policy should remain restrictive because inflation was still markedly above target and rapid business cost growth would keep it elevated, even as capacity utilisation appeared close to normal but was drifting down.
On 23 September, Norges Bank raised the policy rate from 4.25% to 4.50%, judging that a somewhat tighter stance was needed to return inflation to target within a reasonable time horizon as inflation remained markedly above target and the outlook further ahead had not changed materially despite lower-than-projected underlying inflation and capacity utilisation slightly below normal. It said the policy rate would likely need to remain elevated for a time and signalled that further increases were possible if warranted by the inflation outlook.