"The job of bringing inflation back to target has not been completed, but a cautious easing of monetary policy will pave the way for returning inflation to target without restraining the economy more than needed", says Governor Ida Wolden Bache.

The monetary policy stance is restrictive and has contributed to cooling down the Norwegian economy and to dampening inflation in recent years. Inflation has fallen but is still above the target of 2 percent. At the same time, unemployment has increased somewhat from a low level. Output is now close to potential. In June, the Committee began a cautious normalisation of monetary policy and reduced the policy rate from 4.5 percent to 4.25 percent.

The Committee judges that a restrictive monetary policy is still needed. If the policy rate is lowered too quickly, inflation could remain above target for too long. On the other hand, an overly tight monetary policy stance could restrain the economy more than needed to bring inflation down to target. Since the June Report, inflation has evolved as projected but the outlook indicates that it will remain elevated for a little longer. Growth in the Norwegian economy seems to be stronger in 2025 than previously projected, and there appears to be slightly lower spare capacity. Based on the Committee’s current assessment of the outlook, a somewhat higher policy rate will likely be needed ahead compared with the outlook in June. The Committee considered keeping the policy rate unchanged at this meeting but concluded that a rate cut is now appropriate.

"Incoming data since June indicate that there is a little less spare capacity in the economy, and that inflation may remain elevated for a little longer than projected in June. Therefore, we will probably not reduce the policy rate ahead as quickly as envisaged before summer", says Governor Ida Wolden Bache.

A cautious normalisation of the policy rate will pave the way for inflation to return to target further out without a substantial increase in unemployment. The policy rate forecast in this Report declines gradually to somewhat above 3 percent towards the end of 2028. The forecast has been revised up somewhat since the June Report. Registered unemployment will likely increase a little. Given a gradual decline in wage growth ahead, inflation is projected to move down and be close to 2 percent in 2028.  

"We do not envisage a large decrease in the policy rate ahead. The forecast presented today is consistent with one rate cut per year in the coming three years. In the projections, the average interest rate on residential mortgage loans declines to a little more than 4.5 percent in 2028", says Governor Ida Wolden Bache.

There is uncertainty about future economic developments. The Committee gave special attention to the fact that the unpredictable framework for international cooperation and trade creates uncertainty about the inflation and growth outlook for both the Norwegian and the international economy. There is also uncertainty about wage growth and its impact on domestic inflation going forward. If the economy takes a different path than currently envisaged, the policy rate path may also differ from that implied by the forecast. If the outlook indicates that inflation will remain elevated for longer than projected, a higher policy rate than currently envisaged may be required. If the outlook indicates that inflation will return to target faster or labour market conditions weaken, the policy rate may be lowered faster.

Norges Bank will hold a press conference following the monetary policy decision in November 2025.