- Decision
- Maintain
- Rate change
- 0 bps
- policy rate
- 4%
Norges Bank’s Monetary Policy and Financial Stability Committee kept the policy rate unchanged at 4 percent at its 21 January meeting, arguing that monetary policy must stay restrictive because overall inflation, though “much lower,” remains above the 2 percent target while underlying inflation has held close to 3 percent since autumn 2024 and unemployment has risen as capacity utilisation slips to a normal level; the Committee nonetheless expects to lower the rate later in 2026 if the economy evolves as projected and stressed it is “not in a hurry” to do so. The decision leaves the rate 50 bp below the 4.5 percent level maintained until June 2025, after which two 25 bp cuts brought it to the current 4 percent. The statement contained no new operational or liquidity measures. Policymakers warned that cutting too fast risks entrenching above-target inflation, whereas keeping rates too high could damp activity more than needed; a weaker krone or prolonged cost pressures could call for higher rates, while a faster-than-expected decline in inflation or a softer labour market could justify earlier easing. Heightened geopolitical tensions add to the uncertainty around the outlook, and updated forecasts will accompany the next policy decision on 26 March 2026.
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.