- Decision
- Lower
- Rate change
- 25 bps
- policy rate
- 4%
Norges Bank’s Monetary Policy and Financial Stability Committee cut the policy rate by 25 bp to 4.00 % at its 17 September meeting, judging that a restrictive stance is still needed to return inflation to the 2 % target but that a “cautious easing” can proceed without unduly curbing activity as output is near potential and unemployment has edged up while inflation, though lower, remains elevated and growth prospects for 2025 have improved. After holding the rate at 4.50 % from December 2023, the Committee delivered a first 25 bp cut in June and left policy unchanged in August. The new 4.00 % rate will apply from 19 September, with the overnight lending and reserve rates set at 5.00 % and 3.00 %, respectively. Consumer price inflation has moderated but is still above target; registered unemployment has risen modestly, and the Committee now sees slightly less spare capacity amid stronger-than-expected growth. The members highlighted uncertainty stemming from an “unpredictable framework for international cooperation and trade,” which clouds both global and domestic inflation and growth prospects. While the rate path in the accompanying report envisages a gradual decline to a little above 3 % by end-2028—roughly one cut per year—the Committee warned that slower disinflation could warrant a higher path, whereas faster progress or weaker labour-market conditions would justify quicker easing.
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.