Mario Draghis endeavors to get interest rates down, has given a startling development here at home.
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Norwegian money market rates, which forms the basis for interest rates on a variety of loans in Norway, as bonds and bank loans to businesses and households, has risen sharply in the last month.
Reason: Governor Mario Draghis endeavors to push down interest rates to the public in the euro zone.
– Yes, you can really say it says senior economist Kjersti Haugland DNB Markets to DN.
Even when adjusted for the effects of Norges Bank refrained to cut interest rates in March, the rise in money market rates have been exaggerated, says DNB economist.
The Norwegian money market is in fact closely linked to international money markets. Utility which infect Norwegian interest (see fact box at the bottom of the case).
So far, however, Norwegian banks black to overturn some of the extraordinary rise in interest rates over the Norwegian businesses or households. This means that banks right now technically have reduced their interest margins.
– On Thursday we get lending survey from Norges Bank. When we learn more about what the banks are going to do with their margins. In the previous survey said banks had the plan to cut their lending margins and one can say that it is what is now done in practice, says Haugland.
Want more dollars
According to Haugland the European Central Bank (ECB) ultraekspansive monetary policy led to lower rates on credit in Europe, making it more attractive to US companies to borrow money there.
– After borrowing want these companies naturally to toggle these loan amounts into dollars. The consequence is that the price of the dollar has gone up, writes Haugland tomorrow report from DNB Markets Tuesday.
Since the Norwegian money market is based on US dollar loans swap market, infects higher premiums in dollars over the Norwegian bond market.
0.2 percentage points higher
According to Haugland is now the premium between the policy rate and three-month money market rate of 45 basis points, almost 20 basis points higher than Norges Bank has estimated for the second quarter. There are 100 basis points in one percentage point.
There are basically expectations of future policy rate which determines the level of money market here at home. But since money market in Norway has a link to international money markets can fortsyrrelser out also help to explain changes in interest rates at home.
And although it is difficult to accurately estimate the expectations of the policy rate, calculations show DNB Markets now made that there is a relatively large proportion of the increase due to factors other than interest rate expectations.
– It is not talking about a violent rise, but we believe that part of the premium that has nothing with renteforvetninger to do 20 basis points higher than Norges Bank’s projections, says Haugland.
Follow developments in money market DN stock exchange and market pages
Since most mortgages in Norway are floating rate loans, money market rates have greater significance for Norwegian households than households in most other European countries.
The Norwegian money market is related to the international money markets where the US dollar is still the main currency.
While money markets in other European countries mainly consist of unsecured, direct interbank loans in domestic currency, the loans in the Norwegian money market via dollar so that dollar interest rates have a direct impact on interest rates in the krone market.
The reason for this is that there is a separate crown market. Previous attempts to establish such a market has stranded because of low activity.
Therefore, it is Norwegian krone market organized by consuming far more active currency swap market. This is the market that are used by loans between Norwegian and foreign banks active in the Norwegian money market.
It is this link between Norway and international markets which has led to an increased premiums in Norwegian money market rates, according to economists DNB Markets.
The relationship is as follows:
1. The European Central Bank’s massive acquisitions of government bonds in the eurozone pushing down the price of loans in Europe.
2. Thus it is becoming more attractive for American businesses to borrow in Europe. These companies want to switch on euro into dollars, which leads to increased demand for dollars.
3. When demand for dollars increases, the price of holding dollars, often referred to as a liquidity premium on dollar or dollar prize.
4. The increased dollar prize transmitted in the next round of the Norwegian money market rates. The reason is that there is a separate Norwegian krone market. The loans in the Norwegian money market goes through dollar market.
Thus ie Mario Draghis extraordinary measures to bring down interest rates in Europe simply led to higher interest rates at home.
month money market rate in Norway is currently at 1.45 percent. For comparison, the shortest money market rates in euro are currently below zero. Three-month euro market is marginally conditional positive, at 0.001 percent.
Norway has previously experienced that money market have risen because of factors that are not directly related to the situation in Norwegian banks or in the Norwegian economy.
Already in financial crisis infancy, around a year before the Lehman collapse in autumn 2008, began Norwegian money market rates to rise due to increased dollar prize.
During the financial turmoil led dysfunctional money markets to higher Norwegian lending rates both for households and businesses.
Sources: Norges Bank / DNB Markets / EMMI / Oslo Børs / Infront / Macrobond
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