The time with record low interest rates is running out

– Of course, I expect the interest rate to be raised. It has been signaled so clearly in June and August, and seems so sensible, that I will be very surprised if it does not happen, says Professor Ola H. Grytten at the Norwegian School of Management to NTB.

Virtually everyone agrees that Norges Bank will raise the key interest rate when the interest rate committee meets on Wednesday. Admittedly, expectations vary somewhat on how steep the new interest rate path will be – that is, how quickly interest rates will be raised to more normal levels – but when central bank governor Øystein Olsen holds a press conference on Thursday, experts believe it is to herald the end of years with record low interest rates.

– The interest rate forecasts will be about the same as in June, which indicates that the key interest rate will rise to 1.25 per cent and the mortgage rate to 3 per cent or so during the next year, Grytten says.

The key policy rate has been at zero since 7 May last year. Norges Bank has announced that it will be kept calm until there are clear signs that conditions in the economy are improving. Now it is likely that Olsen will be the first central bank governor among colleagues in countries we like to compare ourselves with, which raises the key interest rate.

Expect six increases

– The Norwegian economy has fared significantly better than one might fear in March 2020. The vaccines came faster, the handling of the health crisis in Norway was better than one might fear and the recovery of the economy has taken place faster than we envisioned in the spring of 2020. These were assessments we did in the previous Monetary Policy Report in June. So far, we are sticking to the plan we made then, Olsen said when he justified the interest rate decision in August.

The road to normal interest rates starts with an increase of 0.25 percentage points for the week. And before the coming year is over, it has been set at least four more times, believes chief economist Kjetil Olsen in Nordea Markets.

He expects a somewhat steeper interest rate path than in the Monetary Policy Report in June and considers it most likely that by the end of 2022 we will have had as many as six interest rate increases. In that case, it should indicate a key interest rate of 1.5 per cent at the end of next year.

– The most important reason for this is that the interest rate expectations of trading partners will increase in the autumn and in the new year and help to raise Norges Bank’s interest rate forecast, Olsen says.

Goodbye super low interest rate

Olsen and colleague Elisabeth Holvik in Sparebank 1 Markets feel confident that when we now leave the zero interest rate level, it will be a long time until the next time we see such low levels again. We should just be happy about that, says Holvik, who points out that higher interest rates are the most important sign that the economic crisis is over.

She believes that Norges Bank will raise interest rates steadily, between four and six times, by the end of 2022.

– But it will take a long time until interest rates are back to normal levels, so households that are afraid of the effects of higher interest rates have plenty of time to adjust the exchange rate, she says.

DNB Markets writes in an analysis on Thursday that Norges Bank will stick to the interest rate path from June. This indicates two interest rate increases this year and three next year. After that, it is more uncertain, but macro analyst Oddmund Berg has little faith that things will go so well in the Norwegian economy in 2023 and 2024 that it must be cooled down with further interest rate increases.

– We believe Norges Bank will come up with the interest rate hikes it has signaled in the short term. Nothing has happened in the Norwegian economy since June that indicates that the bank’s view of the situation will change fundamentally, Berg tells NTB.

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