- Decision
- Maintain
- Rate change
- 0 bps
- policy rate
- 4.25%
Norges Bank’s Monetary Policy and Financial Stability Committee held the policy rate at 4.25% in August, judging that inflation remains too high despite slowing more than projected and that a restrictive stance is still needed. Over the past year, the central bank cut the rate to 4% in September 2025, held it through March and raised it by 25 basis points in May 2026. Twelve-month consumer price index inflation was 3.0% in July, while inflation adjusted for tax changes and excluding energy products was 2.7%, still above the 2% target. Capacity utilisation appears close to normal but is drifting down, while unemployment has changed little in recent months. The krone is broadly in line with the level assumed in June after weakening earlier in the summer and subsequently appreciating slightly. The Middle East conflict continues to create inflation uncertainty, with oil prices little changed since June and gas prices somewhat higher. Norges Bank said the rate path will depend on economic developments and that a further increase may still be necessary, with new forecasts due in September.
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.