Economists had warned against any increase in Norwegian interest rates right now, and the country’s central bank may well have taken note. Its governor and board decided on Thursday to keep Norges Bank’s policy rate unchanged at just 0.75 percent, opting to delay an increase until the spring.
“Our current assessment of the outlook and the balance of risks suggests that the policy rate will most likely be raised in March 2019,” stated the head of Norway’s central bank, Øystein Olsen. That’s likely to discourage commercial banks from another interest rate rise at a time when Norwegians collectively hold more debt than ever before, both in the form of large home mortgages and consumer loans.
Not a single economist on newspaper Dagens Næringsliv (DN)’s interest rate panel favoured any interest rate hike when the bank board met for its last meeting of the year at which members evaluate the policy rate. Three professors, the chief economist at Handelsbanken Capital Market and a senior researcher at Frischsenteret all argued against raising rates, citing an ongoing need for low rates mostly because of international market unrest.
While Norway’s economy continues to recover from the oil price collapse in 2014, the housing market has weakened while consumer prices and wages are stable. “Activity here at home seems to hold up, but it has weakened abroad and markets are nervous,” Kari Due-Andresen of Handelsbanken told DN. “Norwegian households have become more concerned and consumption has been disappointing in recent months. The housing market is weaker than the central bank expected. Even though inflation rose in November, wage growth isn’t high enough to meet inflation goals. There’s available capacity in the labour market. The Norwegian economy doesn’t need higher rates now.”
Professor Steinar Holden of the University of Oslo was among the other economists on DN‘s panel who agreed. “Even though increased oil investment is driving the growth in the economy, there’s considerable uncertainty internationally,” Holden told DN. “There’s still a need for low rates.” Professor Hilde C Bjørnland of the Norwegian Business School BI said that Norges Bank, which raised rates by a quarter point earlier this autumn, “should take a break and evaluate the situation. A new interest rate increase shouldn’t come until the new year.”
That’s what will happen, given Olsen’s remarks. The central bank board agreed that the “upturn” in the Norwegian economy “appears to be continuing.” It noted, however, that “uncertainty surrounding the effects of higher interest rates suggests a cautious approach to interest rate setting.” The fall in oil prices and weaker global growth prospects “imply a slightly slower rate rise” than the bank had projected in September.
Rates will thus remain stable for now, with another increase put on ice as winter sets in.