The tightening of monetary policy has contributed to cooling down the Norwegian economy and to dampening inflation in recent years. Inflation is still above target, and underlying inflation has been close to 3 percent for some time. At the same time, unemployment has increased somewhat. Capacity utilisation in the economy has declined and is close to a normal level. The policy rate was reduced earlier this year from 4.5 percent to 4 percent.

 “We are not in a hurry to reduce the policy rate. The interest rate outlook is little changed since the September Report. In our projections, the average residential mortgage rate declines to just above 4.5 percent in 2028. As such, we do not envisage a large reduction in the policy rate ahead”, says Governor Ida Wolden Bache.

The Committee judges that a restrictive monetary policy is still needed.  Inflation is still too high. The krone exchange rate has depreciated since the September Report and contributes to raising inflation prospects somewhat going forward. If the policy rate is lowered too quickly, inflation could remain above target for too long. On the other hand, there seems to be a little more spare capacity in the economy than projected in the September Report. The Committee does not want to restrain the economy more than needed to bring inflation down to target. The Committee’s overall assessment is that the monetary policy outlook is little changed since September. The Committee judges that it is appropriate to keep the policy rate unchanged at this meeting but still envisages a cautious normalisation of the policy rate in the next years. 

The policy rate forecast in this Report is little changed. The forecast is consistent with 1-2 rate cuts next year and a further reduction to somewhat above 3 percent towards the end of 2028. The number of registered unemployed is expected to increase a little over the next couple of years, but the unemployment rate will likely remain close to the current level.  With a gradual decline in wage growth ahead, inflation is projected to move down and be close to 2 percent in 2028.

If the economy takes a different path than currently projected, the policy rate path may also differ from that implied by the forecast. In its discussion of the risk outlook, the Committee paid special attention to the fact that unpredictable conditions for international cooperation and trade are creating uncertainty about the outlook for inflation and growth both internationally and in Norway. If labour market conditions weaken more than expected or the outlook indicates that inflation will return to target faster, the policy rate may be lowered faster. On the other hand, if growth in business costs remains elevated for longer, or the krone proves weaker than projected, inflation could remain elevated for longer than currently projected. A higher policy rate than currently envisaged may then be required.

“Our objectives stand firm. We will finish the job and ensure that inflation is brought all the way back to 2 percent”, says Governor Ida Wolden Bache.

Norges Bank will hold a press conference following the monetary policy decision in January 2026.