UPDATED: Norway’s central bank (Norges Bank) decided against raising interest rates any higher this week, but hinted they’ll likely rise in March. The country’s key policy rate thus remains at 0.5 percent, still very low by historic standards, and some economists expect as many as four interest rate hikes this year.
They include economists at Nordea Markets, SEB and Handelsbanken, among others. They all point to a rising inflation rate, low unemployment and pay growth as factors likely to bring interest rates up to a “more normal” level.
The lack of a rise on Thursday, however, was good news for Norwegians currently shocked by record high electricity bills this winter. They’ve more than doubled and even quardrupled in some cases, with the December bills now rolling in even higher than feared. It’s not unusual for households to be hit with bills of as much as NOK 5,000-8,000 (around USD 700) or more, also for Norwegians’ beloved holiday homes known as hytter.
Higher mortgage payments at the same time would be most unwelcome, even though most borrowers will likely need to get used to higher interest rates and payments as the economy recovers. Inflation has also begun to rise.
“Relaxation of (Corona) containment measures will likely contribute to a continued economic upswing,” the bank noted, while “higher electricity prices have resulted in high consumer price inflation.” Underlying inflation has also “risen more than expected and is now close to the inflation target,” the bank’s committee on monetary policy and financial stability stated on Thursday.
Ongoing uncertainty over the effects of the current Omicron variant of the Corona virus make it difficult to predict “the further evolution of the pandemic,” according to the committee. It was also reported to be concerned by the risk of a potential rise in domestic price and wage inflation. Looming labour negotiations are expected to be the most demanding in years, with many unions already demanding relatively large pay raises especially for nurses and others exhausted by the Corona crisis.
The committee, led by Norges Bank’s soon-to-retire governor Øystein Olsen, thus decided to hold off on any interest rate hike but warned of one in early spring. “Based on the committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised in March,” Olsen stated.
He will have retired by then, with Thursday’s interest rate presentation his last after more than a decade as central bank chief. Drama has swirled around his replacement, after the highly qualified Deputy Governor Ida Wolden Bache suddenly got competition from the former Norwegian prime minister and current secretary general of NATO Jens Stoltenberg. It’s up to the finance ministry to select a new central bank chief, with a decision due soon.