– Too early to worry – E24

Five months of zero interest rates have contributed to strong growth in house prices. But it is too early to worry about development, says central bank governor Øystein Olsen.

When he presented Norges Bank’s interest rate decision on Thursday morning, it emerged that interest rates will likely remain at an all-time low for some time, with interest rates expected to rise in the first half of 2022. .

This is before the last time the central bank presented estimates.

One of the main drivers of the acceleration is that coronavirus vaccination will begin soon, says the central bank governor.

– There will now be access to vaccines in Norway and with our trading partners quite quickly, at least early next year. In our estimates, this will drive the development of production and activity in Norway and internationally. It is the most important driver, Øystein Olsen tells E24.

At the same time, he emphasizes that the central bank assumes an interest rate of zero percent “for some time”, that is, towards the spring of 2022.

– It has been a very expansionary monetary policy and it is also necessary in the future, says Olsen.

– The interest rate has worked

– Now we have had half a year with zero interest rates. Has it had the effect Norges Bank expected?

– Yes, we believe that it has helped to counteract the violent setback we experienced in March. At the same time, we have said that the most important response from the authorities has been a strong expansion of public budgets.

Olsen also points out that the room for maneuver in setting interest rates has worked.

Before the crown crisis hit Norway, the central bank had raised the key interest rate to 1.5%. Since then, Norges Bank has cut it in several rounds between March and May: first to 1.0 percent, then to 0.25 percent, before it fell to a record low of zero percent.

One of the results of the cuts has been a growing real estate market, says the central bank governor.

– We are quite sure that the fixing of interest rates has helped the housing market not to crash at all, but to go in the opposite direction. The interest rate has worked. At the same time, we are humble enough to acknowledge mass politics and quick reaction as key contributors.

– Too early to worry

But house prices have risen more than the central bank estimated.

After a relapse in the spring, prices have risen sharply during the summer. The rally also continued throughout the fall, which is typically a weaker development month.

November figures from the brokerage industry showed the first drop in house prices since March, but continued positive underlying growth. At that time, prices were 7.8 percent higher than a year ago.

Today’s monetary policy report indicates that Norges Bank believes the recovery will continue in 2021, with annual growth of 6.7 percent, up from the previous estimate of 5.2 percent.

– How has Norges Bank’s opinion changed since the previous report? Are you more concerned about house prices now than you were last time?

– We do not use the term concerned in this context. It’s too early to worry about developments in house prices, says Olsen.

– In the spring, there were reasons to worry about moving in the opposite direction, but it has not happened. On the contrary, house prices have risen. It has risen a little stronger than we expected. If it must continue and accelerate, then there is something we must follow and emphasize in our overall assessment.

– We believe in a more moderate evolution of house prices. The uncertainty is great, but now it is too early to worry too much.

– What does Norges Bank do if growth remains at the current level and does not slow down, as has been projected so far?

– If the development in the housing market is going to be significantly different, then there is new information that will affect our compensation.

– Are the signs of interest rate hikes in early 2022 enough to ease pressure on the housing market?

– We closely monitor the housing market and it may affect our compensation, but managing house prices is not within our mandate. But we recognize that such low interest rates over a longer period will stimulate lending and home prices. That was part of the purpose when we lowered the interest rate.