We Are Raising The Policy Rate To Dampen Inflation

Norges Bank raised its policy rate by 0.25 percentage point to 4.5% on Sept. 24, as the central bank seeks to bring inflation back toward its 2% target. Governor Ida Wolden Bache said the committee expects rates to remain elevated for a time and is prepared to raise them further if needed.

Figures released earlier in September put consumer price inflation at 3.3%. A measure adjusted for tax changes and excluding energy products was 3.0%. Both were above the bank’s target. Bache said inflation had been above target for several years, adding that sustained high inflation can make it more persistent and harder to reduce.

Underlying inflation eased over the summer and was lower than the committee had expected, but the bank said the outlook further ahead had not changed materially. Higher oil, gas and other commodity prices since June are expected to raise costs for Norwegian businesses and the prices of imported consumer goods. The bank also cited sharp labour-cost increases in recent years as a factor likely to keep inflation elevated.

Other developments may push in the opposite direction. The krone has strengthened so far this year compared with the level assumed in the bank’s June projections, which the bank said would, by itself, reduce inflation. The policy-rate forecast published with the decision shows the rate staying close to its current level for a period before declining; it remains elevated for longer than in the June forecast.

Higher Rates Aim to Curb Prices

The increase raises borrowing costs for households and businesses as Norges Bank tries to slow price growth. The decision matters to people with loans and to firms weighing investment or hiring, although the source statement does not quantify the effect on individual payments or business costs.

The bank is balancing its inflation objective with its mandate to support high employment and economic stability. It said it does not want to restrict the economy more than necessary. Its forecast projects inflation easing to 2% in 2029, while registered unemployment edges up to slightly above pre-pandemic levels. These are projections, not guaranteed outcomes.

Bache also said household purchasing power is expected to keep strengthening as inflation falls, even after interest expenses are included. The timing and scale of that improvement depend on how prices, wages and interest rates develop.

Inflation Risks Since June

At its June projection round, the committee judged that a rate increase would probably be needed at one of the coming meetings. The decision announced in September followed that assessment, though the bank noted that underlying inflation had moderated over the summer.

External pressures have also shifted. Norges Bank said energy and commodity prices were higher than in June, amid uncertainty linked to conflict in the Middle East. It also reported that market rates had risen considerably since June and that policy rates had recently been raised in the United States and the euro area. Further increases were expected in those economies and elsewhere, according to the bank. Higher rates abroad can put upward pressure on Norwegian rates, including through effects on the krone.

Domestic labour-market indicators presented a mixed picture. Regional Network contacts told the bank that recruiting had become easier as the economy cooled gradually. Registered full unemployment was 2.1% of the labour force in August, unchanged little over the past year and in line with the bank’s projection. The statement did not give a comparison window for that August rate beyond noting the limited change over the preceding year.

“It will likely be necessary to keep the policy rate elevated for a time.”

— Ida Wolden Bache, Governor of Norges Bank

Inflation Path Remains Uncertain

The bank said the economic outlook and interest-rate developments are uncertain. The statement does not specify when the rate might begin to fall or whether another increase will be needed; those decisions will depend on incoming information and the committee’s assessment of inflation and activity.

The effect of higher energy and commodity prices is also unsettled. A stronger krone may restrain inflation, while higher import costs, labour costs and interest rates abroad may add pressure. The source statement does not quantify the contribution of each factor. Its inflation, wage and unemployment figures for coming years are forecasts rather than confirmed outcomes.

Future Rate Decisions Depend on Data

Norges Bank’s committee will continue setting the policy rate with the aim of returning inflation to target. Its current forecast keeps the rate close to 4.5% for a period before a gradual decline, but the bank said it could raise rates further if necessary. The statement does not identify a date for the next change.

The bank’s next assessments will turn on whether inflation moves in line with its projection, alongside developments in wages, employment, energy and commodity prices, and foreign interest rates. Its present forecast is for inflation to slow from next year and reach 2% in 2029.

Key Questions

What rate did Norges Bank set?

The committee raised the policy rate by 0.25 percentage point to 4.5% on Sept. 24, 2026.

Why did Norges Bank raise the rate?

The bank said inflation remained above its 2% target and that higher rates would help bring it down. It cited higher energy and commodity prices and recent labour-cost increases as risks to the inflation outlook.

Could the policy rate rise again?

Yes. Norges Bank said the committee was prepared to raise the rate further if needed. It did not say that another increase was certain or give a date for one.

When does the bank expect inflation to reach 2%?

The bank’s forecast projects inflation moving down to 2% in 2029. That is a forecast, and the bank said the economic outlook remains uncertain.

Source: primary