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Tuesday, May 21, 2024

Interest rates start moving up

Norway’s central bank raised interest rates for the first time in more than a year on Wednesday, citing a slight rise in consumer prices and signs of economic growth. Analysts expect that rates will keep rising, much to the distress of Norwegian exporters already hurting from the strong local currency.

Norway’s key lending rate remains low, rising just a quarter-point to 1.5 percent, meaning that the effect will be minimal on most borrowers. Even after the rise, rates will continue to hover at the record low levels seen over the past year.

Svein Gjedrem, head of the Bank of Norway (Norges Bank), noted, however, that the central bank thinks rates should be between 1.25 and 2.25 percent until the next monetary policy report is ready in March, “unless the Norwegian economy is hit with new, major disruptions.”

The quart-point rise was made, Gjedrem said, because price growth has been “a little higher than expected.” Unemployment, meanwhile, is “much lower than we earlier predicted.”

While the global economy is still at a deep low point, the central bank sees signs of growth. Activity in the Norwegian economy has risen higher than expected, the central banker noted.

Gjedrem said the bank board had considered raising rates at its last meeting, but held off. Now, he said, developments suggested it was “right” to raise rates accordingly.

He also strongly hinted that rates would continue to rise gradually in the months ahead. In raising rates, the central bank is risking yet another rise in the strength of the Norwegian currency not least against the dollar.That’s causing severe problems for export firms whose prices are set in dollars, because they’re now getting far less Norwegian kroner for their products.

Exporters whose prices are set in Norwegian kroner, meanwhile, wind up at a competitive disadvantage because their prices will be higher than ever when converted into other currencies. The tourist industry also suffers when the krone rises, because everything from food prices to hotel rooms jump in other currencies.



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