August 8, 2022

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Sets interest rates – and announces seven more interest rate hikes before 2024

On Thursday morning, Norges Bank confirmed that the core policy rate would be raised from 0.5 per cent to 0.75 per cent.

– As we now assess the outlook and risk picture, the key policy rate will be further raised in June, says Governor Ida Walton Pache.

Central Bank Governor Ida Walton Pache.  Photo: Ole Berg-Rusten / NDP

Central Bank Governor Ida Walton Pache. Photo: Ole Berg-Rusten / NDP

The Monetary Policy and Financial Stability Committee of the Bank of Norges justifies the interest rate hike on the grounds that activity in the Norwegian economy continues to increase after the removal of infection control measures this winter.

– Employment has risen further and capacity utilization in the economy is above normal.

The central bank points out that the war in Ukraine is creating uncertainty in economic growth, but also points to the possibility of a resurgence in the Norwegian economy.

– Wage and price growth is higher than planned, and wage expectations have increased. Wage increases and higher prices for the goods we import are expected to push core inflation forward.

Expects 2.5 percent interest

According to the committee, a more important policy ratio is needed to stabilize inflation.

– Higher interest rates will help ease the pressure on the Norwegian economy, but employment is likely to remain high. Uncertainty about economic developments and how families will adapt to higher interest rates indicates that interest rates will gradually rise.

Norges Bank warns that interest rates could rise sharply if there is still room for sustained high inflation.

– The forecast for the core policy rate is higher than the previous monetary policy statement and the interest rate will rise to around 2.5 per cent by the end of next year.

This means that Norges Bank is announcing seven more interest rate hikes in 2022 and 2023.

Were you disappointed by the fixed interest rates?

In short, the key policy rate is the interest rate that banks receive on deposits at Norges Bank. Making key policy rate changes is one of the most important tools that Norges Bank has to control the Norwegian economy, and it affects you directly.

You will be particularly vulnerable if you have a mortgage or plan to take it out. One of the most noticeable things for Norwegians when the key interest rate is raised is the high price of the mortgage.

Danske Bank has recently experienced great demand from customers who are considering building interest rates on their mortgage.

– Progress is higher than normal when it comes to questions about fixed interest rates. The reason, says Alexander Doll, head of retail at Danske Bank, is that all expected interest rates are coupled with uncertainty about rising prices for food, fuel and electricity.

Since banks already take into account that the interest rate will rise, the fixed interest rate on the mortgage will usually not be paid financially.

However, fixed interest rates provide a higher forecast.

“Some people worry about their finances and need more control and protection for their financial future,” Doll says.

– Do not think that you have won the market

Danske Bank figures show that 10 per cent of mortgage holders have a fixed interest rate on the entire or part of the loan.

Thea Olson, Consumer Economist at Donske Bank.  Photo: Koran Jorganovich / TV2

Thea Olson, Consumer Economist at Donske Bank. Photo: Koran Jorganovich / TV2

– Norges Bank expects to triple interest rates by 2022. If you want a higher forecast about what you will pay each month in interest and installments, it may be worthwhile to evaluate whether there is a fixed interest rate. Thea Olson, Consumer Economist at Donskey Bank, says that whole or parts of your own debt can be a good solution.

– However, it is important not to go for such a deal in the hope that you will “win the market”, but you have to pay interest rates to get a predictable economy, says Olson.

– Bargain or change banks at interest rates

Carsten Bill, Hussein’s communications chief, believes Thursday’s isolated interest rate hike will not be a major concern for most people.

– For a regular loan of two million kroner, the costs increase to about 300 kroner per month or 4000 kroner per year. But this interest rate hike is the third in a row, and Pihl says there will be at least one more interest rate hike before the summer.

The interest rate has risen by one per cent since the beginning of the interest rate hike last autumn.

Head of Communications at Husierne, Carsten Pihl.  Photo: Christian Y Vibe / Homeowners

Head of Communications at Husierne, Carsten Pihl. Photo: Christian Y. Vibe / Homeowners

– If you regularly borrow two million kroner, a one point increase in interest rates will increase the cost of borrowing approximately 15,000 kroner. That too until the summer. There may be changes in the interest rate even after the summer, and this can add up to a few thousand kroner per year in interest expense.

Homeowners advise people to follow what the bank does and be an active bank customer.

– Pihl’s clear advice is to bargain on interest rates or change banks.

Changes in core policy rates often have an impact on the home market, changing people’s chances of borrowing and serving. Carl O., CEO of the Norwegian Real Estate Association. According to Kieving, the housing market and housing prices are characterized by strong demand from Norwegians who are still highly affordable.

– Today’s interest rate decision and announcement of future interest rate hike will help reduce the temperature in the home market. Buyers of homes in the hot market should take into account that housing and living costs will increase significantly in the coming years, Kieving said.

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