Norges Bank: Holds Rates - Signals it is Prepared to Hike if Needed
Norges Bank kept rates unchanged at 4.5% but kept open the possibility of further policy tightening should inflation remain high. The market does not expect any more hikes and neither do we.
The Bank noted in the statement that “Inflation is too high. It will likely be necessary to keep the policy rate elevated for a time, and we are prepared to raise the policy rate if needed,” inflation has been constantly high and above target since 2020 reaching 3.4% in September but the Committee also does not want to restrict the economy more than needed.
Ahead of the meeting there had been relatively little new information on the real economy. Registered unemployment continued to decline in September and is now marginally below Norges Bank's projection. Employment growth has also been slightly stronger than expected. But retail sales have been modest. There are also indications that wage growth this year could end up slightly below Norges Bank's estimate, although the monthly wage data are not directly comparable with the annual measure of wage growth.
New forecasts were not prepared for this meeting. New information was assessed against the projections in Monetary Policy Report 3/26, which was published on 24 September 2026.
Although there are factors pointing towards lower inflation ahead, core inflation remains at 3% and is still too high. We think Norges Bank needs to see clear evidence that inflation is converging towards the 2% target before signalling rate cuts and that might not happen until early 2028.
Figure 1: Wage Growth (%Y/Y)
Source: Datastream/CE