Stock Exchange rallies despite fears

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Norwegians have begun predicting the possible consequences of the unfolding drama in international markets for the country, as the Oslo Stock Exchange itself put days of successive falls behind it to close trading up 1.06 points to 348.05 on Tuesday.

The index fell dramatically at the start of trading but rallied quickly, boosted by a small increase in oil prices. Before today, the stock exchange, in line with many others, had fallen sharply in recent times, dropping by around 20 percent over the last week and a half alone. Bjørn Roger Wilhelmsen of analysts First Securities told financial newspaper Dagens Næringsliv that such a decrease could be characterized as “a crash.” Even if such a crash turned out to be an “overreaction” that does not lead to any actual recession, Wilhelmsen nonetheless predicted the the instability could eventually affect Norway in a number of ways.

Mortgage rates could go up
One of those ways is through increased interest rates on bank loans and mortgages. Norwegian banks last increased mortgage rates on May 18, after which money market rates have gradually risen without banks changing their mortgage rates. The Norwegian InterBank Offered Rate (NIBOR) three month figure – which banks pay to borrow money – has gone up from 2.69 to 3.11 percent since the last interest rates increase. If the NIBOR rates remain at that level or increase, many banks could increase mortgage rates and other charges as financial costs rise for the banks themselves.

Steinar Juel, a chief economist at Nordea Markets, told Norwegian Broadcasting (NRK) that the fact that money market rates “have a life of their own” could mean that the NIBOR could grow independently of the decision to be made by Norges Bank later this week on interest rates. Juel predicts an increase in mortgage rates “during autumn” if the NIBOR continues to grow. Bank DnB NOR also warned of increases, with finance director Bjørn Erik Næss telling Dagens Næringsliv that “how big the rate increase will be for the customers is impossible to say.”

Export industry concerns
Professor Ragnar Nymoen of the University in Oslo told newspaper Aftenposten that he also predicted that rates could go up “even if Norges Bank keeps interest rates low,” affecting short-term loan holders at first and eventually mortgage holders if the problems are not addressed. Nymoen is also concerned that increased unemployment and reduced consumer demand in the USA and Europe could “hit Norwegian exports and therefore Norwegian jobs.”

Low oil prices, another consequence of the current global economic problems, could hit the country’s sovereign wealth fund (often called the “oil fund”) and “lead to lower investment in the oil sector that could also affect Norwegian jobs,” Nymoen predicted. The lower oil prices will nonetheless lead to a weaker kroner in the short-term, strengthening export-dependent industries that have been hit by a strong kroner earlier this year.

Interest rates meeting on Wednesday
Kai Leitemo, a professor at the Norwegian School of Management, agreed with many of Nymoen’s predictions, stressing to Aftenposten that although Norway was better prepared than many for any impending problems, an international crisis could still “harm jobs if export industries begin to struggle.”

Norges Bank meets on Wednesday for a regularly scheduled discussion of interest rates. Many expect them to hold rates at 2.25 percent, to which they were set in May, despite earlier plans to increase rates gradually over the coming year. Nordea Market‘s Juel told Dagens Næringsliv that the downside of this could be a “weaker” job market, although he was confident that the current international issues would not lead to major problems in Norway unless they snowballed into a full-blown financial meltdown.

Views and News from Norway/Aled-Dilwyn Fisher
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