- Decision
- Maintain
- Rate change
- 0 bps
- policy rate
- 4.25%
Norway’s Norges Bank kept its policy rate at 4.25 % at the 13 August meeting, judging that restrictive settings remain necessary to complete the disinflation process even as it signalled that, provided the economy develops as projected, further gradual cuts are envisaged during 2025. After holding 4.5 % from December 2023, the Committee delivered a 25 bp easing to 4.25 % in June before pausing at this meeting. The standing overnight lending and reserve rates stay at 5.25 % and 3.25 %, maintaining the existing corridor. Headline inflation has cooled from earlier peaks—CPI stood at 3.0 % in May—yet remains above the 2 % target, while unemployment has edged up and the output gap has narrowed to around zero. Externally, oil prices have declined and the krone has weakened slightly more than assumed. The Committee highlighted heightened global trade policy uncertainty as a risk to both growth and price prospects. It reiterated that policy adjustments will hinge on incoming data, warning that persistent inflation could require higher rates, whereas faster disinflation or a sharper rise in unemployment would argue for quicker easing; updated forecasts will accompany the September decision.
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.