Interests, Finance | We should expect zero interest rates for a long time

Experts are clear that the interest rate will remain at zero when Norges Bank publishes its interest rate decision on November 5.

– The situation of the crown is overwhelming. The infection has now recovered, with a lockdown in Europe and tighter restrictions in Norway. This is what creates uncertainty about the plans and prospects for the Norwegian economy, says chief economist Kjetil Olsen at Nordea.

House prices and debt

During the previous interest rate meeting on September 24, Norges Bank estimated that the key policy rate will remain at zero for some time. The so-called path of interest rates will not increase until the second half of 2022.

DNB Markets senior economist Kyrre Aamdal says one factor that can lead to interest rates rising earlier than expected is the development of household debt. It is high and a further increase represents a risk of future setbacks. Rising house prices go hand in hand with rising debt. Norges Bank is concerned that house price inflation is too high.

– Strong growth in house prices, coupled with an improvement in the economy, may lead to interest rates rising towards the end of next year, says Aamdal, but emphasizes that it is not yet the most likely alternative.

Zero for two years

Handelsbanken’s chief economist Kari Due-Andresen also believes that we should expect the interest rate to remain at zero for another two years, as seen now.

– If the housing market develops stronger than expected, this in isolation points in the direction of a faster rise in interest rates. However, the recent surge in infections may contribute to weaker development than the central bank has assumed. This points in the direction of a slower rise in interest rates, he says.

Also read: Finance expert harasses with DNB: – Appears as the Egon restaurant of the banking world

Danske Bank chief economist Frank Jullum also thinks it’s uncertain whether we can see an interest rate rise next year. It depends on how quickly we get back to normal everyday life and whether we use the money we saved this year.

The article continues during the vote.

He notes that Norges Bank has been aware that there is a risk that low interest rates could add to financial instability for a long time because house prices rise too fast and debt grows too high.

– Therefore, there is a possibility that house prices will increase so much in the next 6 to 12 months that the interest rate will already rise next year, he says.

The homeowner

Low interest rates, which will help us get production and employment in the country back to normal, will also make households borrow more.

Also read: Offers the lowest interest rate in Norwegian history

Today, three out of ten say they will struggle with an interest rate increase of up to five percentage points.

Nordea’s consumer economist Derya Incedursun notes that house prices are determined by supply and demand, and low interest rates help increase demand.

– There is no simple key to knowing what to do with rising household debt, says Incedursun.

There was full activity in the housing market after there were temporary eases in mortgage regulations to help loan customers and consumers who were affected by the coronary restrictions.

The Finance Ministry is now tightening its mortgage regulations again. However, if it gets too tight, for example, people with lower incomes and those entering the housing market for the first time will be affected.

– But I think it is important to find a solution to the housing problem. Especially in those cities where there is greater demand than supply. Here, prices are under pressure and this means that people go into debt more, he believes.

(© NTB)