Norges Bank

Rate decision november 2022

At its meeting on 2 November 2022, the Committee decided to raise the policy rate by 0.25 percentage point to 2.5 percent

Policy rate raised to 2.5 percent

Norges Bank’s Monetary Policy and Financial Stability Committee has unanimously decided to raise the policy rate by 0.25 percentage point to 2.5 percent. Based on the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised further in December.

“Economic activity is high in Norway, and unemployment is at a historically low level. Inflation has continued to edge higher and is markedly above our target of 2 percent. We are raising the policy rate to curb inflation”, says Governor Ida Wolden Bache.

Inflation has increased more than projected, and the labour market appears to be a little tighter than previously anticipated. These developments could suggest raising the policy rate by more than 0.25 percentage point at this meeting. On the other hand, there are signs that some areas of the economy are cooling down, and prospects for lower-than-expected freight and energy prices may curb inflation ahead. The policy rate has been raised markedly over a short period, and monetary policy is beginning to have a tightening effect on the economy. This may suggest a more gradual approach to policy rate setting.

The outlook is more uncertain than normal. The future policy rate path will depend on how the economy evolves.

 

A new set of forecasts for the economy was not prepared for the monetary policy meeting on 2 November.

 

Rate effective from 4 November 2022:

  • Policy rate: 2.5 %
  • Overnight lending rate: 3.5 %
  • Reserve rate: 1.5 %

Contact:

Press telephone: +47 21 49 09 30
Email: presse@norges-bank.no

Norges Bank is raising the policy rate to bring down inflation

Introductory statement by Governor Ida Wolden Bache at press conference following announcement of the policy rate.

Chart 1: Policy rate raised from 2.25 to 2.5 percent

Norges Bank’s Monetary Policy and Financial Stability Committee decided unanimously to raise the policy rate by 0.25 percentage point to 2.5 percent.

Norges Bank's task is to keep inflation low and stable. The operational target is inflation of close to 2 per cent over time. We are also mandated to help keep employment as high as possible and to promote economic stability over time.

Economic activity is high in Norway, and unemployment is at a historically low level. At the same time, we are seeing that some areas of the economy are cooling down. 

Inflation is very high. Many people are experiencing how demanding it can be to cope with rapid and unexpected price increases. High inflation is weakening households’ purchasing power and hampering economic decision making for both firms and households. We believe that a higher policy rate is needed to curb inflation. 

In its deliberations, the Committee was concerned with balancing the risk of tightening too much against the risk of tightening too little.

If we do not tighten monetary policy enough, there is a risk that inflation will gain a foothold at a high level, and that it will be necessary to raise the policy rate even higher at a later stage to reduce inflation. On the other hand, if we raise the policy rate too much, we might dampen the economy more than necessary, which is something we want to avoid. We believe that we can achieve an appropriate balance of these risks by raising the policy rate by 0.25 percentage point now.

Let me a say a little more about the background for the policy rate decision. New forecasts have not been prepared for this monetary policy meeting, but we have assessed new information against the projections we presented in September.

Chart 2: Gas and electricity prices have declined

Prices are rising rapidly among our trading partners, and inflation has been higher than projected in the previous Monetary Policy Report. But both gas and electricity prices have recently fallen from high levels. Global freight prices are still high but have fallen recently and more than we had anticipated.

Many central banks have responded to the surge in inflation by raising policy rates further in recent weeks, and policy rate expectations have increased. Higher interest rates could lead to slower growth ahead than we projected earlier.

Chart 3: Unemployment is low

Domestic activity was higher through the summer months than assumed earlier. Household consumption has been higher than expected. At the same, we are seeing signs of a cooling housing market. House prices fell more than we had expected in September, and the number of unsold homes has increased. According to Statistics Norway’s business sentiment survey, the prospects for manufacturing have weakened.  

The labour market is tight, and the employment ratio is high. The number of employed appears to be slightly higher than expected, while the number of unemployed has been a little lower. The number of job vacancies is high, but the number of new vacancies has decreased slightly.

Chart 4: Inflation is high

Inflation has continued to edge higher and is markedly above our target of 2 percent. In the year to September 2022, consumer prices rose by almost 7 percent. Energy prices were a main driver, but prices are also rising rapidly for a range of other goods and services, both for domestically produced and imported goods and services.

In September inflation was higher than we had expected, with a surprisingly sharp rise in transport prices, which tend to vary widely.

The Committee judges that a higher policy rate is needed to bring inflation down towards the target.

Inflation has increased more than projected, and the labour market appears to be a little tighter than previously anticipated. These developments could suggest raising the policy rate by more than 0.25 percentage point at this meeting.

On the other hand, there are signs that some areas of the economy are cooling down, and prospects for lower-than-expected freight and energy prices may curb inflation ahead. The policy rate has been raised markedly over a short period, and monetary policy is beginning to have a tightening effect on the economy. This may suggest a more gradual approach to policy rate setting.

The future policy rate path will depend on how the economy evolves. The outlook is more uncertain than normal, but we will most likely raise the policy rate again in December, when we will also present this year’s fourth Monetary Policy Report with new forecasts for the Norwegian economy.

Presentation at press conference 3 November 2022 (pdf)

20:46

Press conference starts at 10.30 am (In Norwegian)

Monetary policy assessment

Norges Bank’s Monetary Policy and Financial Stability Committee has decided to raise the policy rate by 0.25 percentage point to 2.5 percent. Based on the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised further in December.

In Monetary Policy Report 3/22, which was published on 22 September, the Committee’s assessment was that the policy rate would most likely be raised in November. The projections were based on a rise in the policy rate to around 3 percent in the course of winter. Inflation was projected to slow and approach target in the medium term. Unemployment was projected to increase somewhat, albeit from a low level.

High inflation and higher interest rates globally

High energy prices, strong demand and supply constraints have fuelled a sharp rise in global consumer prices. Goods and services prices among Norway’s trading partners are rising rapidly, and since the September Report, the rise in prices has been faster than expected. In recent weeks, gas and electricity spot prices have fallen from high levels. Futures prices suggest that gas and electricity prices will rise again but be lower in the coming year than assumed in the September Report. Freight rates remain high but have fallen more than assumed.

Øre/KWh

Source: Refinitiv Datastream

Central banks in many trading partner countries have responded to the surge in inflation by raising policy rates further in recent weeks, and policy rate expectations have increased.

Policy rates and estimated forward rates in selected countries. Percent. 1 November 2022 (solid line) and MPR 3/22 (dashed line)

Sources: Bloomberg, Refinitiv Datastream and Norges Bank

Capacity utilisation among trading partners is close to a normal level but is edging down. Overall economic activity appears to have been slightly higher than expected, but tighter financial conditions could lead to slower growth ahead than projected earlier.

Near-term expectations of the Norwegian policy rate have fallen a little while longer-term expectations have increased a little. The money market premium has been higher than projected, while the rise in residential mortgage rates has been broadly as expected. The krone has been weaker than projected but has appreciated somewhat recently.

Higher-than-expected activity in the Norwegian economy

Activity in the Norwegian economy was higher through the summer months than assumed earlier, and mainland GDP was higher in August than projected in the September Report. Household consumption contributed to lifting growth and was a little higher than expected. At the same time, there are signs of a cooling housing market. House prices fell more than expected in September, and the number of unsold existing homes has risen.

Statistics Norway’s business sentiment survey indicates weak developments in manufacturing towards year-end.

GDP for mainland Norway. Seasonally adjusted. Index. February 2020 = 100

Sources: Statistics Norway and Norges Bank

The Government’s Fiscal Budget Proposal for 2023 entails somewhat higher public spending than projected in the September Report, but the overall fiscal stance appears to be in line with that projected. 

Unemployment is low, and employment is high. The number of employed appears to have been a little higher in August and September than assumed. Registered unemployment was 1.6 percent in October, which was a little lower than projected. There was a further slight decrease in new job vacancies.

Share of labour force. Seasonally adjusted. Percent

Sources: Norwegian Labour and Welfare Administration (NAV) and Norges Bank

Higher-than-projected inflation

Inflation is high. The consumer price index (CPI) rose by 6.9 percent in the year to September 2022. The 12-month rise in the CPI adjusted for tax changes and excluding energy products (CPI-ATE) was 5.3 percent in September, a little higher than projected. Transport prices, which tend to vary widely, showed a much faster rise than anticipated. Other underlying inflation indicators have also continued to move higher. The decline in freight and electricity prices is reducing business costs and may help to curb underlying inflation ahead.

Consumer prices. Twelve-month change. Percent

Sources: Statistics Norway and Norges Bank

Need for higher interest rates in the Norwegian economy

The operational target of monetary policy is annual consumer price inflation of close to 2 percent over time. Inflation targeting shall be forward-looking and flexible so that it can contribute to high and stable output and employment and to countering the build-up of financial imbalances.

Inflation has risen further and is markedly above the target. Capacity utilisation in the Norwegian economy is high, and the labour market is tight. The Committee judges that a higher policy rate is needed to bring inflation down towards target.

Inflation has increased more than projected, and the labour market appears to be a little tighter than previously anticipated. These developments could suggest raising the policy rate by more than 0.25 percentage point at this meeting. On the other hand, there are signs that some areas of the economy are cooling down, and prospects for lower-than-expected freight and energy prices may curb inflation ahead. The policy rate has been raised markedly over a short period, and monetary policy is beginning to have a tightening effect on the economy. This may suggest a more gradual approach to policy rate setting.

The outlook is more uncertain than normal. The future policy rate path will depend on how the economy evolves.

The Committee decided unanimously to raise the policy rate to 2.5 percent. Based on the Committee’s current assessment of the outlook and the balance of risks, the policy rate will most likely be raised further in December.

 

Ida Wolden Bache
Pål Longva
Øystein Børsum
Ingvild Almås
Jeanette Fjære-Lindkjenn

2 November 2022

 

Charts - Monetary policy meeting - November 2022 (pdf)