Interest, Finance | We must expect zero interest rates for...

The key policy rate will remain at zero during Norges Bank’s interest rate meeting on Thursday, the experts believe. The spread of the infection determines whether this will last for several years.

The experts are clear that the interest rate will remain at zero when Norges Bank publishes its interest rate decision on 5 November.

– The corona situation is overwhelming. Now the infection has picked up, with lockdown in Europe and tighter restrictions in Norway. This is what creates uncertainty about the plans and prospects for the Norwegian economy, says chief economist Kjetil Olsen at Nordea.

Housing prices and debt

During the previous interest rate meeting on 24 September, Norges Bank estimated that the key policy rate will remain at zero for some time to come. The so-called interest rate path will not rise until the second half of 2022.

Senior economist Kyrre Aamdal in DNB Markets says that a factor that may lead to interest rates being raised earlier than estimated is the development in household debt. It is high, and a further increase represents a risk of future setbacks. Rising house prices go hand in hand with increased debt. Norges Bank is concerned that house price inflation may be too high.

– Strong growth in house prices, together with an improvement in the economy, may lead to interest rates rising towards the end of next year, says Aamdal, but he emphasizes that this is still not the most likely alternative.

HAS TURNED STRONGLY: DNB Markets, led by senior economist Kyrre Aamdal, believes that the development in household debt may lead to interest rates being raised earlier than projected.
Photo: (Stig Fiksdal)

Zero for two years

Chief economist Kari Due-Andresen at Handelsbanken also believes that we must expect interest rates to remain at zero for another two years, as it looks now.

– If the housing market develops stronger than expected, this in isolation points in the direction of a faster rise in interest rates. However, the recent rise in infections may contribute to a weaker development than the central bank has assumed. This points in the direction of a slower rise in interest rates, she says.

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Click on the image to enlarge. Chief Economist Kari Due-Andresen, Handelsbanken Capital Markets, in a podcast recording at Nettavisen on 14 April 2020.

Chief Economist Kari Due-Andresen, Handelsbanken Capital Markets, in a podcast recording at Nettavisen on 14 April 2020.
Photo: Trond Lepperød (Nettavisen)

Chief economist Frank Jullum at Danske Bank also believes it is uncertain whether we can see an interest rate increase next year. It depends on how quickly we return to a normal everyday life and whether we use the money we saved this year.

The article continues during the vote.

He points out that Norges Bank has been aware that there is a risk that low interest rates can increase financial instability for a very long time by house prices rising too quickly and debt growing too much.

– So there is a possibility that house prices will rise so much in the next 6-12 months that the interest rate will be raised already next year, he says.

The household

The low interest rates, which will help us bring production and employment in the country back to normal, also lead to households borrowing more.

Read also: He offers the lowest interest rate in Norwegian history

Today, three out of ten say they will have problems with an interest rate increase of up to five percentage points.

Click on the image to enlarge. 20191217: Consumer economist and lawyer at Nordea, Derya Incedursun.

Consumer economist and lawyer at Nordea, Derya Incedursun.
Photo: Werner Juvik (Nettavisen)

Consumer economist Derya Incedursun at Nordea points out that house prices are determined by supply and demand, and low interest rates contribute to increased demand.

– There is no simple key to what to do with the increasing debt for households, says Incedursun.

There was full activity in the housing market after there were temporary easings in the mortgage regulations to help loan customers and consumers who were affected by the coronary restrictions.

The Ministry of Finance is now tightening its mortgage regulations again. However, if it is tightened a lot, for example, those with lower incomes and those entering the housing market for the first time will be affected.

– But I think it is important to find a solution to the housing problem. Especially in those cities where there is greater demand than supply. Here, prices are under pressure, and this means that people get higher debt, she believes.

(© NTB)

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