Interest rates keep rising in the worst and the best of times
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- 11 Apr 2023
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The central bank’s decision on Thursday to boost its policy rate by another quarter-point, to 3 percent, came as no surprise. Inflation has eased a bit, to just under 6 percent, but remains way over Norges Bank’s 2 percent target. The central bank’s committee charged with forming monetary policy and ensuring financial stability decided a higher policy rate is therefore needed. More boosts aimed at cooling consumer demand and Norway’s still-strong economy are due later this spring.
“There is considerable uncertainty about future economic developments,” Norges Bank stated Governor Ida Wolden Bache when announcing the interest rate increase, “but if developments turn out as we now expect, the policy rate will be raised further in May.” Probably by another quarter point, with yet another rise by summer, bringing the policy rate up to 3.5 percent.
That in turn will bring mortgage rates up to more than 5 percent, and add thousands of kroner a month to payments on mortgages that have swelled along with housing prices over the past few years. It’s not unusual for households to have mortgages of several million kroner, most all with adjustable rates. Commercial banks are quick to send out notices of rate hikes on loans, less so when it comes to raising interest rates on savings accounts.
Bache’s job is to control inflation and maintain financial stability in Norway. That often comes at a much higher price to those with the least resources: Newspaper Aftenposten reported this week how household interest rate costs alone rose by just over NOK 40 billion last year, from NOK 94 billion in 2021 to NOK 135 billion last year, according to state statistics bureau SSB (Statistics Norway). Households’ interest rate income on savings was much less, rising from NOK 7.2 billion to NOK 17.5 billion. The bottom line, especially for those with large mortgages, will be higher mortgage payments coming on top of bigger bills for most everything else. Read More…
