‘No interest rate increase this year’

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Norway’s central bank, Norges Bank, not only refrained from raising interest rates on Wednesday but its deputy governor said its key lending rate is likely to remain stable for the rest of the year. It currently stands at an historically low level of 1.5 percent.

Jan F Qvigstad told reporters that the bank’s executive board, which sets interest rate levels, had decided at Wednesday’s meeting that the so-called “key policy rate” would “remain at today’s level” through the rest of this year.

The bank reported in a press release on August 29 that the Norwegian economy “is still faring well, but inflation is low. External growth is sluggish and interest rates abroad are very low. Against this background, the key policy rate is kept unchanged at 1.5 percent.”

The decision was in line with the expectations of economists and analysts, who have pointed out that Norway is essentially bound to keep rates low because of the  low rates resulting from economic crisis in other countries.

Even though the central bank and some economists might prefer higher rates to cool off Norway’s still-hot economy, not least the booming real estate markets and high housing prices in many Norwegian cities, they realize that higher rates would further boost the strength of the Norwegian currency, the krone. It’s extremely strong against the crisis-hit euro and the struggling British pound and US dollar. That hurts exports and Norwegian industry wants more favorable currency exchange rates. Many contend that the only Norwegians really benefiting from Norway’s strong currency are those heading off on holiday overseas. Otherwise they make prices in Norway higher than ever, compared to those elsewhere.

Qvigstad acknowledged that “the krone has appreciated somewhat,” and that “the expected upward shift in interest rates abroad has been deferred further ahead.”

So Norwegian borrowers will continue to enjoy relatively low rates on loans, but also must tolerate low rates on savings. At least until early next year.

Views and News from Norway/Nina Berglund

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