“The Committee has decided to keep the policy rate unchanged. Inflation is still above target. If the policy rate is lowered prematurely, prices may continue to rise rapidly,” says Deputy Governor Pål Longva.

Inflation has fallen markedly from the peak but is still above the 2 percent target. Unemployment has edged up in recent years, albeit from a low level. The output gap has narrowed, and output is now close to potential. The tightening of monetary policy has contributed to cooling down the Norwegian economy and to dampening inflation. Since December 2023, the policy rate has been held at 4.5 percent.

The Committee judges that a restrictive monetary policy is still needed to bring inflation down to target within a reasonable time horizon. If the policy rate is lowered prematurely, prices may continue to rise rapidly. On the other hand, an overly tight monetary policy could restrict the economy more than needed to bring inflation down to target. Since the March Monetary Policy Report, developments in the Norwegian economy have been broadly as expected. Trade barriers have, however, become more extensive, and there is uncertainty about future trade policies. The Committee gave special attention to the fact that this may pull the interest rate outlook in different directions. On the one hand, the global growth outlook appears to be weaker, and oil prices have fallen. Norway’s main trading partners are now expected to make more rate cuts than previously. On the other hand, the krone has weakened somewhat and been weaker than assumed.

“Trade barriers have become more extensive, and there is uncertainty about future trade policies. This may pull the interest rate outlook in different directions. There is uncertainty about future economic developments, but the Committee’s current assessment of the outlook implies that the policy rate will most likely be reduced in the course of 2025,” says Deputy Governor Pål Longva.

The uncertainty surrounding the outlook is greater than normal, and the future path of the policy rate will depend on economic developments. The Committee will have received more information about economic developments ahead of its next monetary policy meeting in June, when new forecasts will be presented.

New forecasts have not been prepared for this monetary policy meeting. Monetary Policy Report 2/25 will be published along with the monetary policy decision on 19 June 2025.