The Danes have had interest rates below zero. It hardly happens in Norway. – E24

Norges Bank set the key rate at 0 percent on Thursday. It has never happened before.

Sweden, the European Central Bank (ESB), Japan, Switzerland and Denmark have gone even further. For several years they have had negative key rates.

Analyst Oddmund Berg at brokerage DNB Markets wrote in March an assessment of the possibility that this may also happen in Norway. You do not believe that the Norges Bank negative policy rate is applicable now.

– In Norway, almost all floating mortgage rates have. This means that cuts in key interest rates will quickly result in lower interest rates at banks, he says.

Banks cut interest rates

Lower key interest rates, so that they become negative, may become more relevant if lending rates outside banks do not follow the key policy rate downward.

– If cuts in the key policy rate do not reach businesses and households, Norges Bank may find it necessary to establish a negative key rate, Berg says.

So far it doesn’t look like this. After the interest rate cuts in March, the major banks cut their interest rates by up to 0.85 percentage points. After Thursday’s interest rate dropped to zero, several banks announced that it will cut housing rates by as much as 0.4 percentage points in late May.

There is no need for negative interest rates.

Thus, it appears that most of the 1.50 percentage point interest rate cut is passed on to the clients of the loan.

– The conditions for negative key interest rates do not appear to have been met, says Berg.

In its forecasts for 2023, the Norges Bank predicts that the housing interest rate will drop from around 3 percent at the end of March this year to around 1.60 percent at the end of next year.

This future housing interest rate is made up of zero interest rates, money market rates of 0.3 percent, and then a premium of around 1.3 percentage points up to mortgage rates at banks. The money market rate shows the price banks pay to collect the money they can lend.

Olsen looks in the toolbox

In October of last year, Bank Governor Øystein Olsen gave a conference at BI Norwegian Business School titled “Monetary Policy Toolkit”.

There, he took as his starting point the financial crisis of 2008-2009 and the fall in oil prices in 2014. Almost as a prophecy for today’s crown crisis, he discussed setbacks in the economy that may require “additional measures , plus a cut in the key policy rate to zero. “

One of these “additional measures” is negative interest rates. In the discussion, Olsen notes that almost everyone in Norway has floating mortgage rates.

It showed a figure for the proportion of new mortgage loans with floating interest rates in different countries. In Norway it is around 95 percent. In Sweden and Denmark, the proportion is 50 to 60 per cent, while in the United Kingdom it is less than 10 per cent.

“The structure of the Norwegian loan markets makes the key policy rate an effective tool”Olsen said in BI in October.

Zero interest rate “a good time”

As it is true, the central bank governor, Øystein Olsen, said at the press conference on Thursday that nothing can be ruled out for the future, nor negative interest rates. But in Norges Bank’s updated forecasts, the policy rate is set to zero until the end of 2023 as a “technical premise.”

In the signed introduction to the update, the bank’s board of directors writes that the key policy rate will likely remain at zero “for a long time.”

Interest rates are zero

At his conference last fall, Olsen discussed the impact of key negative policy rates on customer bank rates.

In normal times, key rate cuts will cause both deposit rates and loan rates to drop. The interest rate on deposits is always lower than the interest rate on loans. The difference between the interest rate and the deposit rate constitutes the bank’s interest margin and is an important source of income.

But when the key policy rate drops enough, the deposit rate will reach zero. If the deposit rate is negative, that is, people have to pay to have money in the bank, then they will “put them on the mattress” or find other places to keep them. Then banks will lose a lot of deposit money that they can lend.

Therefore, a suspension of the deposit rate on the way down can also mean a suspension of the interest rate. The central bank interest rate cut works worse when the key policy rate turns negative.

There are no negative interest rates for clients, really

Denmark has had a negative interest rate for a long time. For some clients, this has led to negative interest rates on loans. Basically they recover the money from the loan.

But if you have fees and costs, most people still pay a positive effective interest rate.

Negative key interest rates generally mean that banks must pay to have deposits with the central bank. Bank customers see little about the negative interest rate.