There is a continued need for an expansionary monetary policy. Interest rates abroad are low. Capacity utilisation in the Norwegian economy is below a normal level, and the outlook suggests that inflation will remain below 2.5 percent in the coming years.

Capacity utilisation in the Norwegian economy is on the rise and appears to be somewhat higher than previously assumed. Inflation has declined as expected. Wage growth will likely remain moderate, and the outlook for inflation for the next few years is little changed. Inflation expectations appear to be firmly anchored, and the increase in capacity utilisation suggests that inflation will pick up further out. The changes in the outlook and the balance of risks imply a somewhat earlier increase in the key policy rate than projected in the June Report. Uncertainty surrounding the effects of monetary policy suggests a cautious approach to interest rate setting, also when it becomes appropriate to increase the key policy rate.

"The Executive Board's current assessment of the outlook and balance of risks suggests that the key policy rate will remain at today's level in the period ahead," says Governor Øystein Olsen.

In Monetary Policy Report 3/17, the key policy rate is forecast to be 0.5 percent over the coming year, rising gradually thereafter. The forecast is little changed on the June Report, but is a little higher towards the end of the forecast period.

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