Norges Bank Holds Policy Rate Steady at 4 Percent
Amid High Inflation, Projects Cautious Path Ahead
Oslo, Norway – December 18, 2025
Norges Bank’s Monetary and Financial Stability Committee announced its decision on December 17 to keep the policy rate unchanged at 4 percent. While acknowledging that the tightening of monetary policy has successfully contributed to cooling down the Norwegian economy and dampening inflation in recent years, the Committee maintains that a restrictive monetary policy is still necessary.
Inflation remains above target. Underlying inflation has been near 3 percent for some time. Furthermore, the krone exchange rate has depreciated since the September Report, which contributes to raising inflation prospects going forward.
Balancing Risks and Capacity
The Committee judges that capacity utilisation in the economy has declined and is now close to a normal level. Unemployment has also increased somewhat. There appears to be slightly more spare capacity in the economy than was projected in the September Report. The Committee emphasized that it does not wish to restrain the economy more than is necessary to bring inflation down to the target. However, lowering the policy rate too quickly carries the risk that inflation could remain above target for too long.
The policy rate was reduced earlier this year from 4.5 percent to 4 percent. The Committee’s overall assessment is that the monetary policy outlook is little changed since September, and keeping the rate unchanged at this meeting is appropriate.
A Look at the Future Path
Norges Bank still envisages a cautious normalisation of the policy rate in the next years. Governor Ida Wolden Bache noted, “We are not in a hurry to reduce the policy rate,” and clarified that the bank does not envisage a large reduction in the policy rate ahead.
The current forecast, which is little changed, is consistent with 1–2 rate cuts next year. The projections show a further reduction toward somewhat above 3 percent toward the end of 2028. This rate path implies that the average residential mortgage rate will decline to just above 4.5 percent in 2028.
If the economy evolves broadly according to current projections, the policy rate will be reduced further in the course of the coming year. Inflation is projected to move down and be close to 2 percent in 2028, based on an expected gradual decline in wage growth ahead. While the number of registered unemployed is expected to increase slightly over the next couple of years, the unemployment rate will likely remain close to the current level.
Risk Outlook
The projected policy rate path may change if the economy takes a different direction than currently anticipated. Unpredictable conditions concerning international cooperation and trade are creating uncertainty about the outlook for inflation and growth both internationally and in Norway.
Faster Reduction Scenario: The policy rate may be lowered sooner if the labor market conditions weaken more than expected or if the outlook indicates that inflation will return to target at a faster pace.
Higher Rate Scenario: If growth in business costs remains elevated for longer, or if the krone proves weaker than projected, inflation could remain high for longer. In this case, a higher policy rate than currently envisaged may be required.
Governor Bache stressed the institution’s primary commitment, stating, “We will finish the job and ensure that inflation is brought all the way back to 2 percent.”