Norges Bank holds policy rate at 4%, foresees likely future increase
Norges Bank's Monetary and Financial Stability Committee kept the policy rate unchanged at 4 percent at its meeting on March 25. The Committee's assessment of the inflation outlook suggests a likely rate hike at one of the forthcoming monetary policy meetings.
Governor Bache on persistent inflation
Governor Ida Wolden Bache stated that Norges Bank aims to keep inflation close to 2 percent over time.
She highlighted that inflation has stayed above target for several years, with the outlook pointing to higher inflation than previously projected.
Despite increased uncertainty from the war in the Middle East, the Committee believes a policy rate increase will likely be necessary at one of the upcoming monetary policy meetings.
The Committee emphasized that prolonged high inflation could entrench greater inflation persistence among firms and households, necessitating a tighter monetary policy stance to return inflation to target within a reasonable timeframe.
Economic factors and revised forecast
Since December, inflation has been markedly higher than projected, with anticipated higher wage growth potentially restraining disinflation.
Conversely, a stronger krone is expected to dampen imported goods inflation.
Capacity utilisation holds steady, and unemployment is slightly lower than anticipated.
The war in the Middle East has caused volatility, driving up oil and gas prices, and increasing interest rates globally and in Norway.
These higher energy prices are expected to reduce global growth and fuel inflation.
Consequently, the policy rate forecast has been revised upwards, now projecting an increase to between 4.25 and 4.5 percent by the end of this year.
Source: Policy rate kept unchanged at 4%
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