Norges Bank Keeps Interest Rate Unchanged at Zero Percent – E24

Norges Bank is keeping the interest rate at an all-time low of zero percent, in line with previous signals and the expectations of economists.

– As we assess the outlook and risk outlook, it is highly likely that the key policy rate will remain at the current level for some time, Governor Øystein Olsen says in a press release.

The central bank cut interest rates by a total of 1.5 percentage points during the worst corona period this spring, ending at zero percent for the first time in history.

“The committee’s assessment is that the strong economic recession and great uncertainty about future developments indicate that interest rates will remain calm until there are clear signs that conditions in the economy are normalizing,” the rates committee writes. of interest of the central bank.

Norges Bank has previously announced that the interest rate will probably not be lowered further and has pointed to the possibility of an interest rate increase in the second half of 2022.

Strong backhand

The central bank notes that the Norwegian economy is in a severe recession and that the further spread of the coronavirus and various infection control measures at home and abroad will likely slow the recovery of the economy in the near future.

At the same time, it is noted that house price growth has continued.

“A long period of low interest rates increases the risk of financial imbalances building up.”

Economists were excited in advance about what the bank would say about the recent spurt in the krone transmission and the stricter measures, which combined with lower interest rates internationally could speak of a subsequent rise in interest rates. . On the other hand, surprisingly strong house prices are an argument for higher interest rates.

Norges Bank also notes that international uncertainty has increased, both as a result of increased infection, unresolved elections in the US, and the lack of an agreement between the EU and the UK on Brexit.

The exchange rate of the crown

Norges Bank further writes that the krona exchange rate has weakened since last time and is weaker than they assumed.

The krona exchange rate strengthened after the decision, so that one euro now costs NOK 10.88. That’s roughly five cents less than just before the announcement and the strongest this week.

Furthermore, the profit margin in the Norwegian money market has increased and is now slightly higher than expected by Norges Bank. This means that banks pay more to collect the money that will go towards mortgages.

The central bank also mentions that in the fixed income market, expectations are indicated that the key policy rate will remain at the current level until spring 2022.

– Neutral message

DNB Markets Chief Economist Kjersti Haugland describes the Norges Bank report as “neutral.”

– The spread of the infection now slows down the activity. The plan is quite similar to September, they will keep interest rates low for a while, he tells E24. She herself expects an interest rate hike in March 2022.

Haugland believes that special circumstances are needed for the interest rate to be lowered further.

– We are at the bottom, and Norges Bank provides the maximum amount of gas, and this is also necessary in the future.

It also emphasizes the central bank’s concerns about rising house prices and high debt, which could affect the economy in the long run.

– Norges Bank must find a balance, but consideration for the economy and unemployment will probably be the most important thing for Norges Bank in the future.

Handelsbanken chief economist Kari Due-Andresen also sees no clear signs of changes in Norges Bank’s interest rate plans. She still believes that the interest rate hike won’t come until December 2022, according to a recent analysis.

Today’s decision on interest rates comes after the so-called mid-term meeting, without a full set of new analyzes and forecasts. We won’t get it until December 17.

The key policy rate was unchanged at zero percent