More Norwegians will be competing with all the tourists pouring off cruiseships and flying in to Norway for holidays this summer. Norway’s weak currency makes traveling abroad much more expensive than usual, and the central bank opted against raising interest rates this week to strengthen the krone.
Speculation has been flying for months over whether and when the central bank (Norges Bank) will finally lower its policy rate, which it raised to 4.5 percent last December. It’s been kept there ever since, and those who took up home loans when it was down as low as zero are anxiously waiting for interest rate relief.
An interest rate hike, meanwhile, could boost Norway’s historically weak krone, so the central bank’s committee on monetary policy has to juggle lots of often conflicting priorities. The weak krone can boost exports and keep the Norwegian economy strong, but it also makes all imports much more expensive, thus boosting inflation at home.
Norway’s inflation rate has been steadily declining, though, down to 3 percent, according to the current CPI figure from state statistics bureau SSB (Statistics Norway). The central bank’s inflation goal is just 2 percent, so that’s been the main argument for keeping interest rates at 4.5 percent for the past six months. Higher interest rates slow consumer spending, and can help bring inflation down.
Central bank chief Ida Wolden Bache warned last winter that Norwegians shouldn’t expect to see any cuts in interest rates until late this year. Now many economists have actually been speculating whether she may boost rates once again, this time to strengthen the krone.
She didn’t, after she and her colleagues agreed to keep the policy rate unchanged at 4.5 percent. It will stay there until after the summer holidays, since the central bank’s committee on monetary policy and financial stability won’t meet again until mid-August.
Bache also said the policy rate will “likely” remain at 4.5 percent “for some time ahead.” A series of hikes last year boosted it from 2.75 percent in January 2023 to its current level, and that “has contributed to cooling down the Norwegian economy,” the bank stated in its rate decision on Thursday. Inflation, however, “is still running above target,” and a “rapid rise in business costs (pay raises are averaging 5.2 percent this year) will contribute to keeping inflation elevated.”
The committee was thus concered over the “possibility” that if the policy rate is lowered too soon, “inflation could remain above target for too long.” Bache noted that if Norway’s economy “evolves as currently envisaged, the policy rate will continue to lie at 4.5 per cent to the end of the year, before gradually being reduced.”
She didn’t rule out a rate increase, though: “If capacity utilization increases or the krone depreciates, wage and price inflation could remain elevated for longer. In that case, there may be a need to raise the policy rate.” Norway’s overnight lending rate, meanwhile, remains at 5.5 percent and its reserve rate at 3.5 percent.
The krone did strengthen a bit after the bank’s announcement, with a US dollar costing NOK 10.54 at 10:24am, slightly less than NOK 10.56 an hour earlier. One euro cost NOK 11.29, down from NOK 11.34.
A string of Norwegians, meanwhile, were featured on state broadcaster NRK’s national morning radio newscast Thursday morning, talking about how they’d already decided to spend their summer holidays at home in Norway this year. It’s become too expensive for many to head for Southern Europe, which has also become uncomfortably hot during the past few summers.
In the end, Norway’s tourism industry may come out best. The still-weak krone makes Norway more attractive to foreign tourists, easing the country’s otherwise notoriously high prices. With more Norwegians also staying home this year, hotels can expect high occupancy rates.
NewsinEnglish.no/Nina Berglund
