In a speech, Norges Bank Governor Ida Wolden Bache said the central bank now considers a stronger monetary policy response appropriate when inflation pressures increase. Inflation has remained around 3 percent for two years, above the 2 percent target, while the inflation outlook has worsened following stronger than expected wage growth and a new rise in energy and other commodity prices after the closure of the Strait of Hormuz in the spring. Bache identified three factors prolonging inflation. Service prices rarely fall, meaning disinflation must largely come through fewer or smaller price increases. Higher export prices have also strengthened exporters’ capacity to pay wages, transmitting cost pressure across the economy through Norway’s coordinated wage setting model even after import price growth slowed. Inflation expectations remain above prepandemic levels, creating a risk that prolonged inflation could further delay the return to target. Norges Bank raised its policy rate to 4.5 percent at its September meeting. Bache said the rate will probably need to remain elevated for some time and that the bank is prepared to raise it further if the inflation outlook warrants, while continuing to balance price stability against the employment costs of tighter policy.
Norway's Norges Bank governor signals prolonged 4.5 percent policy rate and readiness to tighten further
Norges Bank Governor Ida Wolden Bache signaled that the 4.5 percent policy rate will probably remain elevated for some time and could rise further if inflation pressures persist. Sticky service prices, export driven wage pressure and elevated inflation expectations have prolonged inflation above the 2 percent target.