Norges Bank Accelerates First Rate Hike – E24

Norges Bank keeps the key policy rate unchanged at zero percent on Thursday.

The decision was expected, but there was greater tension related to the type of interest rate evolution that the central bank anticipates in the future.

Norges Bank had previously forecast that the interest rate could rise from the low level in the first half of 2022.

Now that time has accelerated.

“As the committee now assesses the outlook and risk outlook, the key policy rate will likely rise during the second half of this year,” writes Norges Bank.

Expect an interest rate increase in December

Handelsbanken’s senior economist Marius Gonsholt Hov says that the interest rate trajectory has been adjusted upward, so there is a “certain probability” that the interest rate will increase as early as September.

The interest rate trajectory shows what the central bank considers to be the most likely interest rate evolution in the coming years.

– So the first interest rate increase is fully listed in December. The main impression here is that they are accelerating at least until December. But the door is a little ajar for a raise a little earlier, he tells E24.

Norges Bank’s forecast shows that the key policy rate will rise further in the next few years, such that it could be 1.5% by the end of 2024, the same level as before the crisis.

Hov is joined by Chief Economist Frank Jullum at Danske Bank.

– It seems that there is a probability that the rise in interest rates will take place in December. But there is also a significant probability that it will arrive in September, he says.

– We believe that they will raise the interest rate already in September, but there is uncertainty about the moment. If you can vaccinate so much that the community is open in July, it makes sense to raise interest rates in September, he says.

Jullum notes that NIPH has said that the partnership can only be opened when all people over the age of 45 have been vaccinated, and he believes this is the most important thing that Norges Bank oversees.

– Can they postpone raising interest rates again?

– Then something must happen on the front of the vaccine or another type of shock. For example, if the vaccination schedule moves a lot.

Will raise interest rates “gradually”

– Overall, the outlook and risk outlook suggest a continued expansionary monetary policy. When there are clear signs that conditions in the economy are normalizing, it will again be correct to gradually increase the key interest rate from the current level, Governor Øystein Olsen says in a press release.

Just over a year ago Norges Bank began cutting interest rates to deal with the crown crisis that hit Norway. In just under two months, the interest rate fell from 1.5 percent to a record low of zero percent in May of last year.

The crisis in the crown caused a historically significant decline in the Norwegian economy.

Currently, a new wave of infections has led to stricter measures, but further ahead there are still expectations for better times when a sufficiently large part of the population has been vaccinated, infection measures can be relaxed, and the economy will gradually reopen.

“Activity has recovered since last spring, but recovery is now slowing due to increased infection and strict infection control measures. On the other hand, information from health authorities indicates that a large part of Norway’s adult population will be vaccinated in late summer, ”writes Norges Bank.

Among other things, the central bank also notes that the evolution of the international economy is better than expected, which could give a boost to the Norwegian economy.

– However, it will probably be some time before employment and unemployment return to pre-pandemic levels, writes Norges Bank.