What is a normal rate in Norway? What should Norwegian borrowers be prepared?
Anyone who knows the answer, you know more than the governor.
Last year at this time said Governor Øystein Olsen that a normal key interest rate in Norway when inflation and unemployment is under control, is under four percent. Translated into mortgage responds to a mortgage rate under five percent.
Thursday saw the Governor into the crystal ball. He told the development he waits in the Norwegian economy over the next three to four years. He drew a strikingly optimistic picture when one takes into account the drop in oil prices and expectations of much lower investment in the oil industry.
Salaries and purchasing power will continue to increase, much like in glory years behind us. Unemployment will after a transient increase return to current levels.
Then we should probably also wait normal interest rates?
No, said Governor Øystein Olsen on Thursday.
By the summer of Norges Bank will lower its key rate from 1.25 to 1 percent, the lowest in Norges Bank’s history.
To tell Olsen us in reality that the term “normal rate” has expired.
Norges Bank must follow the journey
In a small country like Norway, with large foreign trade, determined inflation – Norges Bank will rule – a long way off the prices of goods that we import . Thus inflation in other countries and not least exchange rate is important.
But it does not stop there. When oil industry has peaked, other Norwegian industries that compete with overseas grow. Then wage and cost – translated in foreign currency – down.
This gives Norges Bank an additional reason to attach great importance to the exchange rate. It should be weak.
Therefore, the interest rate being what it is.
In a world where money flows freely across borders than ever, must Norway follow the journey, partly or wholly when other countries lowers interest rates. It applies to prevent too many will buy Norwegian kroner. Because then heading up.
– The short answer is that interest rates in Norway are low because interest rates are low abroad, said Olsen Aftenposten after the monetary policy meeting.
He could have said Norges Bank must follow up and down like a cork on the ocean.
In a world where money flows freely across borders than ever, must Norway follow the journey when other countries lowers interest rates
In other words: if you want to know something about interest rates in Norway in the years ahead must look for the answer far beyond Norway’s borders.
Through year rate in most industrialized countries fell faster than Norges Bank has predicted. Some central banks – as in Sweden and Switzerland – no longer pay interest, but takes care instead paid for accepting deposits from banks.
When the manger is empty, bites horses
Outside Norway is the world not normal. Many countries, not only in Europe, struggling to gain momentum on the economy. The overall demand in the world economy is too small.
In such a situation it becomes easy beggar all. Country by country trying to export themselves out of trouble – at the expense of the neighbor. The classic method is to try to strengthen its competitiveness and increase its market share by making their currencies cheaper.
History is full of examples of currency war, through so-called competitive devaluations. Several countries then compete to write down the value of its currency most.
Today, where capital can flow freely across borders, currency wars happening in a big way. It comes to making their currencies less attractive to businesses and investors, both domestic and foreign. For then sinking exchange rate.
To forced interest rates to zero in many parts of the world.
When zero interest rate is not enough, let central banks printing press go to the US and Britain began with the financial crisis. Japan followed. Now press even the European Central Bank money. It does not say out loud, but the purpose is not least to weaken the euro exchange rate.
When the interest rate down also in Norway to prevent that we are inundated with money from Norwegian and foreign enterprises – and speculators.
Norges Bank pause
– If economic developments ahead will be approximately as projected, there are prospects that the key rate will be lowered, wrote Olsen said in a statement Thursday.
Clearer pronounces not central bankers themselves.
For those who still had doubts, came Norges Bank chief economist, Birger Vikøren, with a reader guidance on Norges Bank’s press on the same day:
– In Q2 it is 100 percent probability of cuts, said Vikøren.
One could say that it was funny that Norges Bank would not let action follow words already this week. But the decision of Norges Bank’s Executive Board to wait until early summer with lowering interest rates is mostly as a pause to rain.
The reality is that Norges Bank the last half year clearer than ever have signed up in the competition to make their currencies cheaper measured against other currencies.
In December the key rate was down – from 1.50 to 1.25 per cent, to the surprise of most people, including the bank economists who also missed this week.
Now notifies Norges Bank key rate to be reduced again, most recently in June. A so clearly notice Norges Bank has hardly ever given.
And Norges Bank signaled simultaneously that interest rates will remain at this record low level for at least two years.
Norges Bank may change opinion. But if history is a guide, it is in this case likely that interest rates may be even lower. This applies even more if Norges Bank predictions for Norwegian economy proves too optimistic.
When it comes to interest rates, it is abnormal in becoming the new normal.
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