Ida Wolden Bache: The policy rate will likely be kept unchanged to
the end of the year
Introductory statement by Ms Ida Wolden Bache, Governor of Norges Bank (Central
Bank of Norway), at the press conference following Norway's announcement of the
policy rate, Oslo, 7 November 2024.
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Presentation accompanying the speech
Chart: Policy rate kept unchanged at 4.5 percent
The Monetary Policy and Financial Stability Committee has decided to keep the policy
rate unchanged at 4.5 percent.
Norges Bank is tasked with keeping inflation low and stable. The operational target is
inflation of close to 2 percent over time. We are also mandated to help keep
employment as high as possible and to promote economic stability.
After inflation surged two and half years ago, we have raised the policy rate
significantly, and since December last year the policy rate has been held at 4.5 percent.
The interest rate has contributed to cooling down the economy and to dampening
inflation.
If the economy evolves as currently envisaged, the policy rate will be held at today's
level to the end of the year. At the same time, we are approaching the time to lower
interest rates. The forecast presented at the previous monetary policy meeting in
September, indicated that the policy rate would be gradually reduced from the first
quarter of next year. We have not made new forecasts for this monetary policy meeting,
but the overall outlook for the Norwegian economy does not appear to have changed
materially since September.
Chart: International inflation has declined markedly from its peak
Internationally, central banks appear to have tackled inflation without large costs in the
form of high unemployment. In many trading partner countries, inflation is now back at
around 2 percent.
Many central banks have started reducing their policy rates. Markets expect further rate
cuts internationally over the next year but not to the same extent as in September. US
interest rates have risen sharply in recent weeks.
Chart: Inflation is moving down
The inflation outlook for Norway also indicates that we will be able to return inflation to
target without a large increase in unemployment. Inflation has declined markedly from
its peak and has slowed faster than projected over the past year. Consumer price
inflation peaked at 7.5 percent and is now down to 3 percent, which is a little lower than
we envisaged in September.
But inflation is still above our target, and we expect that some factors will restrain
further disinflation. Wage growth is high, and combined with low productivity growth,
this means higher business costs.
Chart: The krone has depreciated
Moreover, the krone depreciated markedly in the period to summer last year. A weaker
krone means higher import prices. The krone is now a little weaker than before the
monetary policy meeting in September and a little weaker than expected. The
depreciation has been particularly pronounced against the US dollar, which has
appreciated against many currencies in recent weeks. The dollar appreciated further in
the hours following the US election.
Chart: Modest rise in unemployment
Since we started raising the policy rate, unemployment has edged up from a very low
level. At the end of October, registered unemployment was 2.1 percent, in line with our
September projection. Unemployment is still a little lower than in the period before the
pandemic, and the number of job vacancy postings is high.
Chart: The policy rate will likely be held at today's level to the end of the year
The Committee judges that a restrictive monetary policy is still needed to bring inflation
down to target within a reasonable time horizon. The Committee is concerned with the
possibility that if the policy rate is lowered prematurely, inflation could remain above
target for too long. On the other hand, an overly tight monetary policy could contract the
economy more than needed. When we set the policy rate, we have to balance these
trade-offs.
The economic outlook is uncertain. The Committee will have received more information
about economic developments ahead of its next monetary policy meeting in December,
when new policy rate forecasts will be presented.