Norges Bank holds policy rate at 4.5% and says it will likely stay there for some time

Norges Bank's Monetary Policy and Financial Stability Committee kept the policy rate unchanged at 4.5% on 25 January 2024, saying that, based on its current assessment of the outlook and the balance of risks, the rate would likely be kept at that level for some time ahead.

The decision followed the Committee's December 2023 meeting, at which it raised the rate from 4.25% to 4.5%. No new forecasts were prepared for the January meeting; the next Monetary Policy Report is due to be published with the rate decision on 21 March 2024.

INFLATION STILL MARKEDLY ABOVE TARGET

The central bank said inflation remained markedly above target. Underlying inflation had declined further but was still high, unemployment was low and economic growth was weak. Both inflation and economic activity had been broadly in line with the projections in the December 2023 Monetary Policy Report, while the krone was stronger than expected. The overall prospects for the Norwegian economy did not appear to have changed materially, the bank said.

"The Committee assesses that the policy rate is now sufficiently high to return inflation to target within a reasonable time horizon," Governor Ida Wolden Bache said.

Norges Bank said monetary policy was having a tightening effect and the economy was cooling down. However, business costs had risen considerably in recent years, and continued high wage growth and the krone's depreciation through 2023 would likely restrain disinflation, so a tight monetary policy stance would likely be needed for some time ahead. Further out, when inflation falls back and economic conditions so warrant, the Committee said it could start lowering the policy rate.

RISKS IN BOTH DIRECTIONS

The Committee said it was prepared to raise the policy rate again if cost inflation remained elevated or the krone depreciated again, keeping inflation high for longer than previously projected. If the Norwegian economy slowed more markedly or inflation declined more rapidly, the rate could be lowered earlier than envisaged in December, when the bank's forecast indicated that the policy rate would lie around 4.5% until autumn 2024 before gradually moving down.