- Decision
- Raise
- Rate change
- 25 bps
- policy rate
- 4.5%
Norges Bank’s Monetary Policy and Financial Stability Committee raised the policy rate by 25 basis points to 4.50% in September, judging that a somewhat tighter stance was needed to return inflation to target within a reasonable time horizon. The rate had been held at 4% from November through March, raised by 25 basis points to 4.25% in May, held in June and August, and raised by a further 25 basis points in September. Effective 25 September, the overnight lending rate will be 5.50% and the reserve rate 3.50%. Inflation remains markedly above the 2% target, and although underlying inflation has slowed more than projected, the medium-term outlook has not changed materially, with inflation forecast to reach target in 2029. Mainland activity has increased broadly as expected, employment has risen, and capacity utilisation appears slightly below normal, with the economy expected to cool further. A stronger krone should dampen imported goods inflation, while the Middle East conflict, higher commodity prices and rising market interest rates continue to create uncertainty. Norges Bank expects to keep the policy rate elevated for a time before a modest decline and remains prepared to raise it further if the inflation outlook warrants.
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.