“Inflation has been above target for several years. By raising the policy rate, we are helping to reduce inflation. It will likely be necessary to keep the policy rate elevated for a time, and the Committee is prepared to raise the policy rate further if needed to bring inflation down to the 2% target within a reasonable time horizon”, says Governor Ida Wolden Bache.

 “At its monetary policy meeting in June, the Committee judged that it would likely be necessary to raise the policy rate at one of the forthcoming meetings. Over the summer, underlying inflation moderated and was lower than expected. But the inflation outlook somewhat further ahead does not appear to have changed materially”, says Governor Ida Wolden Bache.

Inflation has been above target for several years. Capacity utilisation in the Norwegian economy has drifted down and now appears to be slightly below a normal level. At the monetary policy meeting in June, the Committee judged that it would likely be necessary to raise the policy rate further at one of the forthcoming meetings. Since June, the Committee has noted the following:

• CPI inflation has been higher than projected, while underlying inflation measured by the CPI adjusted for tax changes and excluding energy products (CPI-ATE) has slowed and been lower than projected. The conflict in the Middle East is still creating uncertainty about the inflation outlook, and since June, prices for oil and gas and various other commodities have risen. At the same time, a stronger krone will contribute to dampening imported goods inflation. Market interest rates have increased both internationally and in Norway. Wage growth will likely be lower this year than in 2025 and broadly as projected in June.
• Mainland economic activity has increased largely as expected. Employment has risen further, while unemployment has shown little change in recent months. On the other hand, the share of Regional Network contacts reporting capacity constraints and labour shortages has fallen. Overall capacity utilisation in the Norwegian economy appears to be declining slightly less than projected in June.

The Committee gave special attention to the fact that inflation is still markedly above target. Underlying inflation has been lower than projected, but the inflation outlook somewhat further ahead does not appear to have changed materially. The rapid rise in business costs in recent years will likely 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 does not want to restrict the economy more than needed, but judges that a somewhat tighter monetary policy stance is needed to return inflation to target within a reasonable time horizon.

The Committee’s assessment of the outlook implies that it will likely be necessary to keep the policy rate elevated for a time. The Committee is prepared to raise the policy rate further if warranted by the inflation outlook.

If the economic outlook changes, the monetary policy outlook will also change. The Committee will be particularly attentive to signs that inflation will remain elevated for longer than projected. If, for example, external price impulses prove stronger than currently assumed, a higher policy rate may be needed to return inflation to target within a reasonable time horizon. If the recent months’ inflation figures turn out to be the beginning of faster disinflation or the labour market proves weaker than projected, the policy rate may become lower than currently envisaged.

In the forecasts, the policy rate remains close to the current level for a period ahead before declining somewhat. The new policy rate forecast indicates that the policy rate will remain elevated somewhat longer than the June forecast. With the current policy rate path, inflation is projected to slow from next year and move down to 2% in 2029. The economy is expected to cool somewhat further, and registered unemployment is projected to edge up to slightly above pre-pandemic levels.

The Government laid down a new regulation on monetary policy on 18 September. In the new regulation, the monetary policy objectives and considerations are described with the same wording as in the previous regulation. The new regulation does not entail any changes to the conduct of monetary policy.

The next monetary policy decision will be published on 5 November.