The Committee assesses that a higher policy rate is needed to curb inflation. Inflation is markedly above target. Growth in the Norwegian economy is slowing, but economic activity remains high. The labour market is tight, and wage growth is on the rise.

“There is considerable uncertainty about future economic developments, but if developments turn out as we now expect, the policy rate will be raised further in May”, says Governor Ida Wolden Bache.

Since the December Report, energy prices have shown a pronounced fall, and consumer price inflation has been lower than projected. On the other hand, unemployment has been a little lower than projected, and there are signs that the slowdown in the Norwegian economy will be less pronounced than expected in December. Higher wage growth and a weaker krone than projected earlier push up inflation ahead. It is therefore the Committee’s view that the policy rate needs to be increased to a somewhat higher level ahead than projected earlier in order to bring inflation down to target.

The future path of the policy rate will depend on economic developments. If the krone proves weaker than projected, or pressures in the economy persist, a higher policy rate than currently projected may be needed to bring inflation down to target. If inflation falls faster or unemployment rises more than projected, the policy rate may be lower than projected.

The policy rate forecast has been revised up from the December Monetary Policy Report and indicates a rise in the policy rate to around 3.5 percent in summer.

Norges Bank will hold a press conference following the monetary policy decision in May.