Norges Bank Holds at 4%

Citing Economic Uncertainty

Norges Bank’s Monetary and Financial Stability Committee decided to keep the policy rate unchanged at 4 percent at its meeting on 21 January 2026. While the committee acknowledged that inflation has fallen markedly, it remains above the 2 percent target, necessitating a continued restrictive monetary policy stance.

Economic Context and Rationale

The central bank aims to balance the need to bring inflation down with the risk of restraining the economy too heavily. “We are not in a hurry to reduce the policy rate further,” stated Governor Ida Wolden Bache, noting that inflation excluding energy prices has remained close to 3 percent since autumn 2024.

The committee observed several key economic developments:

• Inflation is still too high, and lowering the rate too quickly could cause it to remain above target for too long.

• Unemployment has increased somewhat as previous monetary policy measures have cooled the Norwegian economy.

• Capacity utilisation has declined and is currently assessed to be close to a normal level.

Future Outlook and Risks

Despite the decision to hold rates steady, Norges Bank indicated that if the economy evolves as currently envisaged, the policy rate will be reduced further in the course of the year. The policy rate forecast presented in December was consistent with one to two rate cuts during 2026, and the committee’s assessment of the interest rate outlook has not changed materially since then.

However, the path forward is subject to significant uncertainty. Governor Bache highlighted that “the current geopolitical situation is tense” and contributes to uncertainty regarding the economic outlook. The future path of the policy rate will depend on how the economy develops:

• Potential for faster cuts: If labor market conditions weaken more than expected or inflation returns to target faster than anticipated, the rate may be lowered more quickly than previously envisaged.

• Potential for higher rates: Conversely, if business cost growth remains elevated or the krone proves weaker than projected, inflation could stay high for longer, potentially requiring a higher policy rate than envisaged in December.

Next Steps

The committee concluded that a restrictive policy remains necessary but noted that an overly tight stance could dampen the economy more than needed. New forecasts were not prepared for the January meeting, but the committee expects to receive more information on economic developments before the next decision. The next Monetary Policy Report will be published along with the policy decision on 26 March 2026.