Norges Bank holds and signals future rate hikes

Norges Bank has maintained a hawkish stance against persistent inflation with a further rate hold.

The bank’s governor, Ida Wolden Bache, announced on March 26 that its monetary and financial stability committee would maintain the policy rate at 4%.

“As recently as in January, we expected the policy rate to be reduced this year,” she said. “But we cannot make any promises about the policy rate, and certainly not in today’s world of abrupt shifts in the outlook.” 

Wolden Bache said the job of tackling inflation had “not been fully completed” and the bank was likely to have to raise rates at one of the forthcoming monetary policy meetings. 

Among European central banks, Norway’s was one of the slowest to ease policy following the 2022–23 inflation surge. The bank hiked rates from 0% in August 2021 to 4.5% in December 2023. Since then, it has only cut rates twice, to 4.25% in June of last year and then by another 25 basis points in September. 

In its latest monetary policy report, published on March 26, the bank said rates were likely to return to 4.25–4.5% by the end of the year.

“Inflation has been markedly higher than projected,” Wolden Bache said, citing a 2.7% annual change in the consumer price index (CPI) measured in February. She added that wage growth was higher than the 2.4% the bank had been expecting in December, and that this would slow disinflation. The CPI figure adjusted for tax changes and excluding energy products was 3% in February, compared with the bank’s 2.7% projection in December.

The bank forecast that CPI inflation would start to fall in 2027 and reach its 2% target by 2029. 

The governor said it was “difficult to assess” underlying inflation pressures because of the uncertainty over energy prices, and the committee would therefore wait for more data.

“The war in the Middle East has led to high volatility in energy and financial markets,” she said. “Oil and gas prices have increased sharply. At the same time, global equity indices have declined, and interest rates have increased both abroad and in Norway. Higher energy prices will likely reduce global growth and push up inflation both abroad and in Norway.”

In its monetary policy report, the bank said economic growth had been driven by household consumption and oil exports. GDP growth was forecast to decline from 1.8% in 2025 to 1.4% in 2026. However, the latter figure was still slightly higher than the bank’s December projection of 1.2%.

Registered unemployment stood at 2.1% in February. Norges Bank said the figure represented a small rise when compared with the immediate post-pandemic environment, but was largely in line with its December projection of 2.2%.