Key Takeaways
- Norges Bank held its policy rate at 4.25%, as widely expected.
- The new rate path points to a peak just above 4.50% by year-end, slightly higher than the March projection.
- Governor Ida Wolden Bache said cost pressures are somewhat stronger than previously expected and signaled that a rate hike is likely at one of the upcoming meetings.
Norges Bank unanimously kept its policy rate unchanged at 4.25% at its June meeting, as widely expected, but signaled that one further interest rate increase is likely this year. The decision was accompanied by the publication of Monetary Policy Report with updated forecasts and a new interest rate path.
“Price growth is too high, and strong growth in firms’ costs in recent years will contribute to keeping price growth elevated ahead,” Governor Ida Wolden Bache said. Norges Bank added that new information points to stronger cost pressures than assumed in March. If developments unfold as projected, the policy rate will be raised at one of the upcoming meetings, the central bank added.
The new rate path is slightly above the March projection and indicates a policy rate a little above 4.50% by the end of 2026. The path then implies a gradual decline from mid-2027, reaching 3.2% by end-2029, as inflation gradually returns to target. The revision marks a clear shift in messaging from the start of the year, when markets and analysts had expected rate cuts to begin sooner.
Norges Bank said the rate path is slightly above market pricing for the near term, and assumes the krone will strengthen slightly following publication.
What Are the Key Norges Bank Interest Rates?
- Policy rate: 4.25%
- Overnight lending rate: 5.25%
- Reserve rate: 3.25%
Cost Pressures and Wage Growth Lift Rate Path
The main driver behind the higher rate path is stronger domestic cost pressure. Core CPI-ATE inflation reached 3.4% year over year in May, the highest reading in four months. Norges Bank now projects CPI-ATE inflation at 3.2% in 2026 and 2.8% in 2027, and expects underlying price growth to remain above 3% in the coming months.
While wage growth this year is projected at 4.5%, in line with the manufacturing settlement of 4.4%, the central bank flagged that expectations for wage growth in 2027 have been revised upward. The Regional Network, an economic survey system used by Norges Bank, now expects 4.1% wage growth next year, up from the March projection. The central bank sees this as a signal that cost pressures are becoming more entrenched.
The committee reiterated that it does not want to restrain the economy more than necessary, but said policy must remain sufficiently tight to bring inflation back to target. It warned that if price growth stays elevated for too long, firms and households could increasingly factor higher inflation into wage and price setting, making disinflation more difficult.
Handelsbanken estimates that new information since March lifted the rate path by approximately 15 basis points, mainly reflecting stronger cost growth and higher wage expectations. Macroeconomist Karine Alsvik Nelson says that “market pricing likely understates the probability” of a near-term hike. The rate path moved somewhat further than Handelsbanken had anticipated, with the projected peak now slightly above, rather than at, 4.50%.
The Key Norges Bank Interest Rate Decision Dates:
- Aug. 13, 2026
- Sept. 24, 2026
- Nov. 5, 2026
- Dec. 17, 2026
US-Iran Deal and Falling Oil Prices Cloud the Outlook
Lower oil and gas prices provide some offset to the domestic inflation picture. Spot and futures prices have declined since March, although they remain above pre-war levels. Norges Bank assumes an oil price of USD 90 per barrel in 2026, down USD 2 from the March report, and USD 79 in 2027.
The central bank said the effect on Norwegian inflation will depend partly on the krone, which remains close to the level assumed in March. Import price pressures were slightly stronger than projected, while prices for some commodities, including aluminum and copper, have risen.
Kyrre Aamdal, senior economist at investment bank DNB Carnegie, says the decision was a “hawkish hold”, expecting Norges Bank to raise the policy rate to 4.50% in September. He points to higher May inflation and the risk of stronger wage assumptions for 2027 as factors supporting a higher rate path.
Swedish bank SEB also expects another hike to 4.50% but sees the timing as highly uncertain, with the US-Iran deal adding a further layer of complexity.
“We expect the bank to refrain from drawing too firm conclusions at this stage,” says Erica Dalsto, chief strategist Norway at SEB, noting that Norges Bank will continue monitoring commodity price spillovers in the months ahead. SEB had expected the rate path peak to remain between 4.25% and 4.50%, making the upward revision higher than SEB had expected.
