Norway seeks higher interest rates, first increase since 2011

The Norwegian interest rates are escalating and in the period of three years, it can have mortgage rates of around 4 per cent. On Thursday, there was the increase since 2011. Norges Bank has raised the key rate by 0.25% to 0.75%. This can be marked as the first step towards a higher interest rate.

In the first quarter of next year, most likely at the monetary policy meeting in March, the key rate will be raised by a new 0.25 percentage point. Most likely, there will be an increase in 2019, towards the end of the year.

Forecasts in Monetary Policy Report from Norges Bank estimate that the key rate will gradually increase to 2 per cent by the end of 2021. A 2 per cent policy rate from Norges Bank implies that mortgage rates will increase from an average of 2.5 per cent today to just under 4 per cent in 2021, according to the report.

New era

So many Norwegian homeowners have never experienced an increase in the interest rate. The new hike will mark a new time for 333,000 homeowners according to Norges Eiendomsmeglerforbund.

“The first increase in interest rates will mean little for the household economy, nor is it being said that it shows higher interest rates for all, but the big question is how the central bank’s interest rate signal will affect people’s behavior,” says Carl O. Geving, managing director of the Norwegian Real Estate Association .

Geving believes that more interest rate hikes will curb the unhealthy price and debt developments that have been in parts of the country during the years of record low interest rates.

Sign of economic growth

Increase in interest rate is a good sign of Norwegian economic growth and is based on continuous recovery. However, compared with the latest Monetary Policy Report from June, expectations for several years to come are down slightly. It surprises Chief analyst Erik Bruce in Nordea Markets.

“Norges Bank has become less optimistic on behalf of the Norwegian economy. I thought there would be more emphasis on inflation has come up and the crown is weak, says Bruce.

Some of the key figures in the report estimate that GDP growth for mainland Norway rises 2.5 percent this year and next year, but will gradually slow down. Capacity utilization is projected to increase over the next two years before it declines slightly. Norges Bank expects unemployment to further decline, and wage growth will increase gradually. Inflation (price increase) is estimated at just under 2 per cent by the end of 2021.

The next monetary policy meeting in Norges Bank is 25 October.

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