Norway's Norges Bank published an op-ed in Aftenposten by analysis director Øistein Røisland responding to claims that large rate increases can sustain inflation by raising businesses’ financing costs and feeding a rate–inflation spiral. Røisland argues that while this “cost channel” is discussed in the literature, the balance of empirical research in Norway and internationally indicates that higher interest rates reduce inflation overall, albeit with a lag. The article contrasts the cost channel with other transmission channels that typically dominate, notably weaker demand and a stronger exchange rate that dampens imported prices. It cautions against inferring causality from the coexistence of high inflation and high interest rates, noting that rates are often high because inflation is high, and cites Turkey’s post-2020 experience as an illustrative case where rate cuts were followed by currency depreciation and higher inflation. Røisland also distinguishes between demand-driven inflation, where higher rates are presented as the appropriate response, and cost-driven inflation, where the trade-off with higher unemployment implies smaller increases and, in some situations, rate cuts could be warranted even if higher rates would still tend to lower inflation.
Norges Bank 2026-04-13
Norway's Norges Bank argues evidence shows higher interest rates lower inflation despite cost channel concerns
Norges Bank published an op-ed by analysis director Øistein Røisland rejecting claims that large interest rate increases sustain inflation via a “cost channel,” arguing that evidence in Norway and internationally shows higher rates reduce inflation over time. The article emphasises that demand and exchange rate channels dominate, warns against misreading the coexistence of high inflation and high rates as causal, and notes that appropriate monetary policy differs between demand-driven and cost-driven inflation.