September 26, 2021

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Interest, Bank of Norway |  Borrowers' last hope: Olsen must come up with an interest rate shock

Interest, Bank of Norway | Borrowers’ last hope: Olsen must come up with an interest rate shock

If Central Bank Governor Oustin Olsen does not change his mind, this is bad news for borrowers.

Arendal (Nettavisen Økonomi): On Thursday, there is an interest rate meeting at Norges Bank, but it’s a so-called temporary meeting. Norges Bank will not touch its key rate after that, but there may be some fresh signals ahead of the important interest rate meeting on September 23rd. Then the new Monetary Policy Report comes with new forecasts for the Norwegian economy.

At its June rate meeting, Norges Bank was aware that the key policy rate was likely to be raised in September. It is also likely that this one hundred percent increase will be priced in by the fixed income market. Norges Bank rarely contradicts market expectations.

– I don’t believe in any new signs, but they will be clearer. If they don’t raise opinions in September, they have to say so now, or else it will be a huge shock. But I think they might make it more clear that they’re going to lift in September, because there’s no doubt.

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Very unlikely

– Now they have the opportunity if they have other ideas in September, but I don’t think so. There is very little possibility. I think they just keep repeating that September is “a done deal,” and that one should expect a gradual rise in rates after that as well, says Olaf Chen, who heads up tactical stockbranding for Nettavisen Okonomi.

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Norges chief economist Harald Magnus Andreessen at SpareBank 1 Markets doesn’t think Norges will say anything new on Thursday. He believes that nothing has happened in the Norwegian or international economy since the interest rate meeting in June, and that what the central bank said at the time no longer holds.

– But if they think it will not increase in September, they should notify it now. If not, there would be a huge discrepancy between the expectations created and reality. They have to adjust themselves if they do not have the ability to lift.

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Absolutely unimaginable

– Things could happen between now and the September meeting that prevent them from increasing, but it’s totally unbelievable that they are now saying they’re holding back on interest rate increases, says the chief economist.

Chief Economist Jan Andreessen works at Eka Group He has always been skeptical about the interest rate increases and hopes the Norges Bank has been waiting for. But he also agrees that there should be some new signals now if Norges Bank does nothing next month.

The danger is that they are too fast on the trigger, and in the current situation there is no real reason to do anything about the interest rate. On the contrary, there is a great deal of uncertainty that the most responsible monetary policy and the best contribution to financial stability will be to keep interest rates unchanged in September, Nettavisen told Økonomi.

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On Tuesday, the three economists participated with DNB Markets chief economist Kjersti Haugland in a meeting on Arendal Week interest rates and economic outlook.

normalization

Here, Chen said, most of the global recovery after the coronary pandemic has taken place.

Most economies have recovered, including the Norwegian economy. I think the Norges Bank will return monetary policy to normal. The logical thing is that they raise rates in September and December, and then I feel very uncertain next year. He says the market prices are in three increases.

In June, the Norges Bank indicated four increases over the next year.

We take Olsen’s cues very seriously, he was clear in June. The message is clear, interest rates must rise as quickly as possible. But the new normal for the Norwegian economy is not as golden as it was before the Corona pandemic. This is partly due to the fact that the oil age is coming to an end, Kjersti Haugland said.

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Five raises

Like Harald Magnus Andreessen, she believes that nothing has happened since June that will prevent Norges Bank from raising rates in a little more than a month. Haugland believes in a total of five central bank increases, so he is likely to stop.

If the mortgage interest rate increases by 1.25 percentage points, that basically means NOK 25,000 in increased pre-tax interest expense on the NOK 2 million mortgage. It comes to just over 2,000 kr per month. The tax deduction takes 5,500 of the increased expenses.

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We believe in increases in December and March and have seen some increases after that within a reasonable time. But in the end we end up below the levels they were before the Corona crisis, as the chief economist expects. From September 2019 to March 2020, the key rate was 1.5 percent.

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no problem

Hoagland also noted that inflation is not a problem for the Norwegian economy. It is currently below the long-term target of 2 percent.

– Hoagland said the Norges Bank currently has no concerns about inflation, rather it is very low. In isolation, very low inflation speaks in favor of low interest rates in order to accelerate economic growth.