In Monetary Policy Report 2/21, which was published on 17 June, the policy rate forecast indicated that the policy rate would be raised gradually from autumn.

“In the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised in September”, says Governor Øystein Olsen.

Economic developments have been broadly as projected in the June Report. The reopening of society has driven a marked rise in activity, and unemployment has fallen further. At the same time, there is still uncertainty as to the evolution of the pandemic and the impact on the Norwegian economy. A high vaccination rate reduces the need for Covid-related restrictions. Nevertheless, it cannot be ruled out that new virus variants may lead to a retightening of restrictions. Underlying inflation has declined and is below the 2 percent target. Increased activity in the Norwegian economy suggests that inflation will pick up further out.

The Committee placed weight on the contribution of low interest rates 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 will help to bring inflation back towards the target. At the same time, a long period of low interest rates increases the risk of a build-up of financial imbalances. The Committee noted that house price inflation has moderated recently, following a marked rise in the period to spring.

“The Committee judges that there is still a need for an expansionary monetary policy stance. At the same time, economic conditions are starting to normalise. This suggests that it will soon be appropriate to raise the policy rate from today’s level”, says Governor Olsen.