- Decision
- Maintain
- Rate change
- 0 bps
- policy rate
- 4%
Norges Bank’s Monetary Policy and Financial Stability Committee left the policy rate unchanged at 4.0 percent, judging that recent data have not materially altered the outlook and that restrictive settings remain necessary while inflation— with underlying price growth “close to 3 percent” and still above the 2 percent target—continues to ease as unemployment edges higher and capacity utilisation returns to normal. After two 25 bp cuts in June and September, the rate now stands 50 bp below the 4.5 percent level held since December 2023. The policy corridor is maintained with the overnight lending rate at 5.0 percent and the reserve rate at 3.0 percent. The Committee cautioned that lowering rates too quickly risks entrenching above-target inflation, but reiterated that, should economic conditions unfold as envisaged, it anticipates further reductions over the coming year, while remaining ready to tighten if inflation proves more persistent or accelerate easing if price pressures subside or the labour market weakens.
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.