October 19, 2021

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Time with record low interest rates is running out

Time with record low interest rates is running out

– Of course I expect an interest rate hike. This was clearly pointed out in June and August, and it seems very reasonable, and I would be very surprised if it didn’t, says Professor Ola H. Grytten of the Norwegian School of Management at NTB.

Almost everyone agrees that the Norges Bank will raise its key rate when the interest rate committee meets on Wednesday. Admittedly, expectations differ somewhat on how steep the new interest rate path will be — that is, how quickly interest rates can be raised to more normal levels — but when Central Bank Governor Austin Olsen holds a news conference on Thursday, experts believe it heralds the end of years with interest rates. standard low.

– Gretten says interest rate expectations will be about the same as they were in June, indicating that the key rate will rise to 1.25 percent and the mortgage rate to 3 percent or so over the next year.

The key interest rate has been at zero since May 7 last year. Norges Bank announced that it will remain calm until there are clear signs of improving conditions in the economy. Among his colleagues in the countries we like to compare ourselves to, Olsen is now likely to be the first central bank governor, raising the key rate.

Expect six increases

– The Norwegian economy was doing much better than one might fear in March 2020. Vaccines came faster, the health crisis in Norway was handled better than one might fear, and the recovery of the economy happened faster than we imagined in the spring of 2020. These were assessments we made out in the previous monetary policy report in June. “So far, we’re sticking with the plan we put in place at the time,” Olsen said when justifying the rate decision in August.

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The path to regular interest rates begins with a 0.25 percentage point increase for the week. And before next year is up, he’s been hired at least four more times, chief economist Kjetil Olsen at Nordea Markets believes.

He expects a somewhat steeper interest rate path than what was reported in the June monetary policy report, and considers it likely that by the end of 2022 we will have up to six rate increases. In this case, you should be referring to a prime rate of 1.5 percent by the end of next year.

Olsen says the most important reason for this is that the interest rate expectations of trading partners will increase in the fall and new year and will help raise the Norges Bank’s interest rate expectations.

Goodbye ultra-low interest rate

Olsen and colleague Elizabeth Holvik at Sparebank 1 Markets are confident that when we now leave the zero rate level, it will be a long time until we see those lows again next time. We should be happy about that, Holvik says, noting that higher interest rates are the single most important sign that the economic crisis is over.

She believes Norges Bank will raise interest rates steadily, between four and six times, by the end of 2022.

– But it will take a long time for interest rates to return to their normal levels, so families who fear the effects of higher interest rates have plenty of time to adjust the exchange rate, she said.

DNB Markets wrote in its analysis Thursday that Norges Bank will stick to its interest rate path from June. This indicates two interest rate hikes this year and three next year. After that, it becomes more uncertain, but macro analyst Odmund Berg has so little confidence that things will go so well in the Norwegian economy in 2023 and 2024 that it should calm down with further rate increases.

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– We believe that the Norges Bank will come up with the rate hike it indicated in the short term. Nothing has happened in the Norwegian economy since June that indicates that the bank’s view of the situation will fundamentally change, Berg told NTB.