“The Committee’s current assessment of the outlook and balance of risks suggests that the policy rate will most likely remain at today’s level for some time ahead”, says Governor Øystein Olsen.

The Covid-19 pandemic has led to a sharp downturn in the Norwegian economy. Since the monetary policy meeting in May, activity has picked up faster than expected. Unemployment has fallen more than anticipated and oil prices have risen. Activity is nevertheless substantially lower than at the start of the year, and there is considerable uncertainty surrounding the path to recovery.

Low interest rates are contributing to speeding up the return to more normal output and employment levels. This reduces the risk of unemployment becoming entrenched at a high level and of inflation becoming too low further out. On the other hand, a long period of low interest rates could increase the risk of a build-up of financial imbalances. In the Committee’s assessment, the outlook and balance of risks imply a very expansionary monetary policy stance.

The policy rate forecast implies a rate at the current level over the next couple of years, followed by a gradual rise as economic conditions normalise.