The chief economists at both of Norway’s biggest banks are predicting that the economy will rebound just as soon as Corona-related restrictions ease. Inflation, meanwhile, can lead to as many as six separate interest rate hikes over the next two years.
That’s more than Norway’s central bank, Norges Bank, has signalled. It could mean that the country’s key policy rate can reach 2 percent during 2023, with commercial lending rates higher.
That’s still very low compared to what homebuyers faced in the 1980s and ’90s, when mortage rates rose as high as 17 percent or even more. Borrowers holding much larger home loans now will nonetheless see their monthly payments rise.
Omicron merely ‘a bump in the road’
Both DNB and Nordea Markets released fresh prognoses of the Norwegian economy this week, just as health authorities reported that most Corona infection measures are no longer necessary and government officials were confirming more rules relaxtion next week. As Norway opens up again, the banks expect solid economic growth.
The latest Omicron variant of the virus that’s still setting infection records “now looks like just a bump in the road” towards “solid economic growth ahead,” wrote Kjetil Olsen, chief economist for Nordea Markets, in its new report.
Policy rate to hit 2 percent next year
Olsen predicts wage- and price growth that’s higher than what the central bank foresees, meaning that “we think the policy rate will be raised faster and higher, to 1.5 percent in the course of 2022 and up to 2 percent in 2023. He thinks interest rates will be raised every quarter through next year.
Kjersti Haugland, chief economist at DNB Markets agrees, especially since inflation is rising faster than expected. Interest rates will need to rise, too. Unemployment rates, meanwhile, have fallen quickly, to just 2.3 percent in December.
“We expect that Norges Bank will raise interest rates at each of its next six meetings on rates,” Haugland wrote in DNB’s report. “That will bring the policy rate up to 2 percent by summer next year, the highest level since 2011.”