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Chart: Policy rate raised to 4.5 percent

The Monetary Policy and Financial Stability Committee has decided to raise the policy rate by 0.25 percentage point to 4.5 percent.

Norges Bank is tasked with keeping inflation close to 2 percent over time. We are also mandated to help keep employment as high as possible and to promote economic stability.

Chart: Inflation has been above target for several years

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 target within a reasonable time horizon.

Let me say a bit more about the background for the decision and the Committee’s assessments.

Figures released earlier this month show consumer price inflation of 3.3 percent. Adjusted for tax changes and excluding energy products, inflation was 3.0 percent.

High inflation over time can make inflation stickier and harder to bring down again. In June, when we last presented projections, 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.

Chart: Oil and gas prices have risen

The sharp rise in firms’ labour costs in recent years will contribute to keeping inflation elevated ahead. At the same time, 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. Higher energy and commodity prices will result in higher costs for many domestic firms and higher prices for imported consumer goods. On the other hand, the krone has appreciated so far this year and is now stronger than assumed in the June projections. A stronger krone will in isolation pull down inflation.

Chart: Monetary policy tightening expected abroad

Higher energy and commodity prices are also pushing up inflation internationally, and market rates have increased considerably since June. In recent weeks, US and euro area policy rates were raised, and more rate hikes are expected in the US, the euro area and various other countries. Long-term interest rates have also increased. Higher interest rates abroad pull in the direction of higher interest rates also in Norway, among other things, through the effect on the krone exchange rate.

Chart: Firms report that it has become easier to recruit labour

When we set the policy rate, we also give weight to employment. We do not want to restrict the economy more than needed. In recent years, the Norwegian economy has gradually cooled and our Regional Network contacts report that it has become easier to recruit labour. Nevertheless, unemployment has shown little change over the past year. In August, 2.1 percent of the labour force was registered as fully unemployed, in line with our projection.

Chart: An elevated policy rate likely necessary for a time

In the policy rate forecast presented today, the policy rate remains close to the current level for a period ahead before declining somewhat. The forecast indicates that the policy rate will remain elevated somewhat longer than indicated by the June forecast.

Chart: Inflation down to target without a marked increase in unemployment

Inflation is projected to slow from next year and move down to 2 percent in 2029. The economy is expected to cool somewhat further, and registered unemployment is projected to edge up to slightly above pre-pandemic levels.

Wage growth is expected to be lower this year than in 2025 and to slow further in the years ahead. With lower inflation, household purchasing power is still expected to continue to strengthen, also when factoring in interest expenses.

The economic outlook is uncertain and hence also interest rate developments. In any case, we will set the policy rate with the aim of returning inflation to target.