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For the first time in almost a year and a half, Norges Bank is raising its key interest rate - by 0,25 percentage points. Probably in the near future there will be several interest rate hikes.
This was announced by Norges Bank at 10am on Thursday. The key interest rate has been at 0 percent so far since May 7 last year.
The reopening of society has given a significant boost to the Norwegian economy, and activity is now higher than before the pandemic. Unemployment continues to fall, and capacity utilization appears to be close to normal levels. Norges Bank believes that the economic recovery will continue throughout the fall.
Photo: Stian Lysberg Solum / NTB
Gradual normalization
"The normalization of the economy shows that a gradual normalization of the key interest rate must now begin," says Governor Øystein Olsen.
Among macroeconomists there was a widespread belief in advance that the key interest rate should be raised at the September meeting, which was also signaled by the central bank. The decision on interest rates is probably the starting point for the further process of interest rate increases.
Mortgage at 3 percent
Professor Ola Grytten of the Bergen School of Business estimates for NTB that the base interest rate will increase to 1,25 percent, and that the current mortgage interest rate will be around 2022 percent by the end of 3.
Norges Bank writes in the justification of the decision on interest rates on Thursday that they will likely increase gradually over the next few years. The interest rate path is slightly higher than in the previous monetary policy report.
- When we now assess the outlook and the risk picture, there will most likely be a further increase in the key interest rate in December - says the governor.
Read our next article: Mortgage Interest Rates ...
Constant uncertainty
- When we now assess the outlook and the risk picture, the key interest rate will most likely be raised further in December.
The Interest Rate Committee notes that there is still uncertainty about the further course of the pandemic and that new variants of viruses may slow down the economic recovery. At the same time, there is still a risk that the pandemic will have long-term employment consequences.
On the other hand, capacity constraints may lead to higher than expected wage and price increases. The Committee believes, however, that the risk of over-inflation is limited, says the committee's explanatory memorandum.
