Ida Wolden Bache: Monetary policy trade-offs in a small open economy - the case of Norway

Speech by Ms Ida Wolden Bache, Governor of Norges Bank (Central Bank of Norway), at the Peterson Institute for International Economics, Washington DC, 24 October 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Central bank speech  | 
29 October 2024

Presentation accompanying the speech

Introduction

Good afternoon. Let me start by thanking the Peterson Institute for the invitation and for giving me the opportunity to address this distinguished audience. It's a pleasure to be here.

[Chart: The tightening was synchronised across countries]

The tightening of monetary policy by central banks over the past few years has been unprecedented in several respects. By some measures, this has been the most globally synchronised of all tightening episodes in the past half century.

In Norway, as in many other countries, global supply chain disruptions contributed to a rise in prices for a broad range of goods during the pandemic. When pandemic restrictions were lifted, economic activity quickly rebounded. The high level of household saving gave an additional impetus to demand. When Russia invaded Ukraine in February 2022, energy and commodity prices soared. Since Norway is a major exporter of oil and gas, those price increases constituted a positive terms-of-trade shock, and they generated large inflows into the Norwegian government's sovereign wealth fund, the Government Pension Fund Global. But at the same time, the increases in energy prices contributed to pushing up domestic business costs and spilled over into consumer prices.

[Chart: Policy rate at 4.5% to end of year, according to forecast]

Norges Bank started a gradual normalisation of interest rates in September 2021, and our key policy rate now stands at 4.5 percent. The policy rate forecast in our latest Monetary Policy Report in September implies that the policy rate will remain at 4.5 percent to the end of this year, before being gradually reduced from first quarter 2025.