Central bank keeps interest rate low

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Norges Bank announced on Thursday that its key lending rate, so-called “styringsrenten,” will remain unchanged at 1.5 percent. The bank board decided that unless the Norwegian economy is suddenly subjected to any major new shocks, the interest rate level should lie between 1 and 2 percent at least until the bank’s next report is published in late June, probably much longer.

Interest rates aren’t likely to rise, according to the bank’s announcement, until the spring of 2014.

Øystein Olsen, governor of the Norwegian central bank, said that both inflation and growth in the Norwegian economy have been “slight lower than projected.” Meanwhile, household debt levels and housing prices “are still rising faster than income.”

Those factors prompted the bank’s executive board to keep what the bank calls its “key policy rate” unchanged.

Olsen noted that the rate is low because inflation is low and because interest rates abroad are “very low.”  Growth prospects for Norway’s trading partners have weakened and it may take longer for inflation to move up to the inflation targets set by the bank.

“The analyses suggest that the key policy rate be kept low longer than previously anticipated,” Olsen said. “The first increase in the key policy rate is now projected to take place in spring 2014.”

Borrowers, especially those holding home mortgages, are likely to see a rise in rates despite the bank’s announcement, though. Norwegian banks, led by dominant DNB, are highly profitable at present but face stricter capital requirements and higher costs. That means they intend to get more money out of the lending customers, despite protests from consumer groups.

DNB announced in February that it would raise rates on its home loans. Other Norwegian banks are expected to follow.

Views and News from Norway/Nina Berglund

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