“Inflation is too high, and the rapid rise in business costs in recent years will contribute to keeping inflation elevated ahead. New information indicates that inflation pressures are slightly stronger than we had anticipated earlier. We expect that a somewhat tighter monetary policy stance will be needed to bring inflation down to target within a reasonable time horizon. If developments turn out as currently envisaged, the policy rate will be raised at one of the forthcoming monetary policy meetings”, says Governor Ida Wolden Bache.

Inflation has been above target for several years. Capacity utilisation in the Norwegian economy appears to be close to a normal level but is drifting down. The previous policy rate forecast from March indicated an increase in the policy rate to between 4¼ and 4½ percent by the end of 2026, and the rate was raised to 4.25 percent in May. Since March, the Committee has noted the following:

• The conflict in the Middle East is still creating uncertainty about developments in oil and other commodity prices. Since March, oil and gas spot and futures prices have fallen. Prices for various other commodities, such as aluminium and copper, have edged up. External price impulses to imported goods appear to be slightly stronger than projected in the March Report. The krone exchange rate is broadly in line with that assumed in March, while market-implied policy rate expectations have fallen a little both internationally and in Norway.
• In Norway, price inflation has been broadly as projected, and it appears that wage growth this year will be broadly in line with the March projection. According to Norges Bank's Expectations Survey and Regional Network, wage growth expectations for 2027 are somewhat higher than in March.
• Mainland economic growth has been slightly weaker than projected. Registered unemployment has been stable in recent months, while LFS data show a rise in unemployment. Regional Network contacts report that it has become easier to recruit. At the same time, the number of job vacancies has risen somewhat in recent months, and employment has increased further. Regional Network contacts expect activity growth to pick up a little again over summer. Overall, new information indicates that capacity utilisation in the Norwegian economy is close to a normal level but is drifting down. Capacity utilisation appears to be broadly at the level projected in March.

The Committee does not want to restrict the economy more than needed. At the same time, the Committee is concerned that inflation is still too high. The rapid rise in business costs in recent years will contribute to keeping inflation elevated ahead. High inflation over time can lead households and firms to begin planning for persistently high inflation. Inflation may then become stickier and harder to bring down again. The Committee judges that a restrictive monetary policy stance is necessary. A somewhat tighter monetary policy stance will likely be needed to return inflation to target within a reasonable time horizon.

The policy rate forecast is a little higher than in March and is just above 4.5 percent at the end of the year.

With a policy rate in line with the forecast, inflation is projected to decline from 2027 and reach 2.0 percent in 2029. The economy is expected to cool, and registered unemployment is projected to edge a little higher to slightly above pre-pandemic levels.

There is substantial uncertainty about the economic outlook. In recent days, news has come in that the United States and Iran have agreed on a memorandum of understanding that provides for the opening of the Strait of Hormuz. If energy markets normalise quickly, external price pressures may prove weaker than currently assumed. The attendant effects on inflation in Norway will also depend on developments in the krone exchange rate.

The future policy rate path will depend on how the economy evolves. The Committee will be particularly attentive to signs of inflation remaining elevated for longer than projected. A higher policy rate than currently envisaged may then be required. On the other hand, capacity utilisation is drifting down, and unemployment is expected to edge somewhat higher ahead. If labour market conditions become weaker than projected or inflation pressures ease faster, the policy rate may become lower than currently envisaged.

A press conference will be held at Norges Bank following the monetary policy decision in August 2026.