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Norges Bank raised its policy rate by 0.25 percentage point to 4.5% on Sept. 24, saying inflation has remained above its 2% target. The bank expects the rate to stay near its current level for a time and projects inflation will return to target in 2029, while warning that the outlook is uncertain.
Norges Bank raised its policy rate by 0.25 percentage point to 4.5% on Sept. 24, citing inflation that remains above the central bank’s 2% target and risks from higher energy and commodity prices. Governor Ida Wolden Bache said the rate may need to stay elevated for a time, with further increases possible if needed to return inflation to target within a reasonable period.
The Monetary Policy and Financial Stability Committee made the decision after consumer price inflation was reported at 3.3% earlier in September. A measure adjusted for tax changes and excluding energy products stood at 3.0%. Both figures were above the bank’s target, which is to keep inflation close to 2% over time.
Underlying inflation moderated over the summer and came in below the committee’s expectations, Bache said. But the inflation outlook further ahead had not changed materially since the bank’s June projections. Those projections had already indicated that a rate increase at one of the coming meetings was likely to be needed.
The bank’s new forecast keeps the policy rate close to 4.5% for a period before it declines somewhat. It expects inflation to slow from next year and reach 2% in 2029. The forecast also points to a further cooling in economic activity, a modest rise in registered unemployment to slightly above pre-pandemic levels, and slower wage growth in the years ahead.
Borrowing Costs May Stay High
The increase raises the benchmark cost of borrowing in Norway and signals that households and businesses may face elevated interest rates for longer than the bank projected in June. The policy rate influences the rates banks charge on loans and pay on deposits, although the effect on individual borrowers depends on their lender and financial arrangements.
The committee is balancing its goal of lowering inflation against its mandate to support high employment and economic stability. It says it does not want to restrict the economy more than necessary. Registered unemployment was 2.1% in August, in line with the bank’s projection, and had changed little over the preceding year even as the economy gradually cooled.
The bank projects that household purchasing power will continue to strengthen as inflation falls, even after interest expenses are taken into account. That is a forecast, not a guarantee: the bank says economic conditions and future interest rate decisions remain uncertain.
Price Pressures Behind the Decision
Norges Bank’s task is to keep inflation close to 2% over time. Its mandate also calls on it to help keep employment as high as possible and promote economic stability. The committee last presented projections in June, when it judged that a rate increase at one of its forthcoming meetings would likely be necessary.
Several developments are affecting the inflation outlook. Bache said sharp increases in firms’ labour costs in recent years are likely to keep inflation elevated. The ongoing conflict in the Middle East adds uncertainty, while oil, gas and other commodity prices have risen since June. Higher input costs can feed through to domestic production and the prices of imported consumer goods.
The stronger krone has been a countervailing factor. It has appreciated so far this year and is stronger than the bank assumed in June, which, other things being equal, can reduce inflation. Abroad, higher energy and commodity prices have also pushed up inflation. Market interest rates have risen since June, and recent policy rate increases in the United States and euro area, along with expected further moves, add pressure for higher rates in Norway through channels including the exchange rate.
“It will likely be necessary to keep the policy rate elevated for a time.”
— Ida Wolden Bache, governor of Norges Bank
Inflation and Rates Remain Uncertain
The bank cautioned that the economic outlook is uncertain, and interest rate developments are uncertain with it. It did not specify how many meetings the rate would remain near 4.5%, or what conditions would trigger another increase or a cut.
It is also unclear how long higher energy and commodity prices will persist, how much they will feed through to consumer prices, and how the krone will move. Those factors could affect whether inflation follows the bank’s projected path to 2% in 2029. The bank’s forecast is conditional on its assessment of the outlook, rather than a promise about future rates or inflation.
Committee Tracks Inflation and Employment
Norges Bank will continue setting the policy rate with the aim of returning inflation to target while weighing employment and economic stability. The next decisions will depend on incoming data, including inflation, wages, labour market conditions, energy and commodity prices, and developments in the krone.
The bank has not given a fixed schedule for future rate changes in the statement. It expects the rate to remain close to its current level for a period and then decline somewhat, but says it is prepared to raise it further if needed. The timing and scale of any subsequent move remain open.
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 remains above its 2% target. Consumer price inflation was 3.3%, while inflation adjusted for tax changes and excluding energy products was 3.0%, according to figures released earlier in September.
Could Norges Bank raise rates again?
Yes. Governor Ida Wolden Bache said the committee is prepared to raise the rate further if needed to bring inflation down to target within a reasonable time horizon. The bank did not specify when or whether another increase will occur.
When does the bank expect inflation to reach 2%?
Norges Bank’s forecast projects that inflation will move down to 2% in 2029. The bank says the outlook is uncertain, so that projection could change as conditions develop.
Source: primary
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