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Interest rates need to rise to cool the Norwegian economy. The question is how many families will have to leave the farm before the right temperature is reached.
The key interest rate in Norway is now 4.25 percent. This is the highest since 2008. And it’s not stopping, the central bank has warned that interest rates will continue to rise. If it does, interest rates will be at a 30-year low.
Now it’s pouring.
It is very painful for those who have less.
Norwegians are one of the most indebted people in the world. Almost 8 out of 10 people own their own home, and most don’t buy it with their own money, but with a bank. Our private debt has risen in recent decades. Proponents have long warned: This is not going well.
Now we’ll get there soon. This may not go down well with some people. Because the problem is not just rising interest rates, but persistently high interest rates.
This is worrisome because many people are balancing on a tight line. Before the nightmare of interest rates and expensive time starts to fully haunt us.
At this time last year, when the key interest rate was 1.75 percent, a million Norwegians couldn’t manage the unexpected expense. But, we managed the fixed costs.
A few months later, in March this year, and with a key interest rate of 3 per cent, it fought closely One in five Norwegians have to pay fixed bills, food and drink and to maintain a normal social life. 153,000 of these are really bad.
The number of this category has almost tripled since 2017. These are Norwegians who avoid receiving food.
There are people on social security, single mothers and the sick. Some people own homes and are directly affected by interest rate hikes. Poor people who are not directly affected by rising house rents are affected indirectly. Here it is The increase is strong.
Do what they can
Dyrtid affects deeply, and it affects widely, with half the families unprotected. So, many people, especially the most financially insecure, have tightened up as much as they can. In winter, when electricity costs astronomical amounts, they used as little electricity as possible. They kept the house cool and took a short bath.
People have turned to hunting for cheap food, and many have reduced social activity. Of course it helps.
But the situation for tens of thousands of families is even worse. A new interest rate hike in December could be the tipping point.
On top of this, if we experience people losing their jobs or housing prices falling sharply – it will be ugly. In the 80s people had to sell their homes but were still left with debt. But at that time, the interest rate was completely different 17 percent.
That’s why it happens
So why can’t Norges Bank stop raising interest rates? Because some Norwegians may admit to being poor, but most of us had so much money that rising interest rates, pig feed and energy didn’t bite us as hard.
Temperatures are still high in the Norwegian economy. This means a high level of activity driven by demand for goods and services.
Even though it’s starting to get tight now, we’re consuming more. The growth of the Norwegian economy has slowed slightly. The same goes for price growth – Mostly because electricity prices are so low this summer.
Driving interest rates even higher is the belief in continued price growth, which will lead to wage growth. Norges Bank expects wage growth to exceed 5 percent next year. Additionally, there are very few workers for the jobs that are available, which means the labor market is very tight. This leads to an increase in wages.
If wages rise, we have money to spend – we demand goods and services. Then they become more expensive. Not only is labor expensive, but because energy is relatively expensive, transportation of goods becomes more expensive, and raw materials are more expensive.
How far to go?
It is a vicious circle that is difficult to reverse. Norges Bank has no easy task. It is more difficult than central banks in other countries. Most countries have seen key interest rates rise – but there are other countries where the population has been hit hard. Precisely because we have so much private debt.
However, most Norwegians will face trouble, at least as long as unemployment remains low and the housing market does not collapse. There is little reason to believe that anything will happen.
But it doesn’t help those who are suffering the most. There is a pain threshold. has reached The question is how long the queues outside the food stalls have to stand.
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