Everything is apparently going according to plan in the Norwegian economy, even though new virus variants are creating uncertainty for Norges Bank. In one month, the key policy rate will probably rise.
The economic development has followed estimates, according to the June report. The reopening of society has given a marked increase in activity, and unemployment has fallen further.
“As we now assess the outlook and the risk picture, the key policy rate will most likely be raised in September,” Central Bank Governor Øystein Olsen said about the interest rate decision that was announced on Thursday.
It was expected in advance that the Central Bank’s Committee on Monetary Policy and Financial Stability would keep the key policy rate unchanged. It had been kept at 0% since May 7 last year.
Economists that NTB has spoken to feel confident that interest rates will rise four times in the next twelve months – twice before the new year and twice in the first half of next year – so that it is 1% higher than today next summer.
Uncertainty about new variants
“The committee still believes that there is a need for an expansive monetary policy. At the same time, economic conditions are normalizing. This indicates that it will soon be right to raise the key interest rate from the current level,” Olsen said.
However, the further development of the pandemic and its effect on the Norwegian economy are still a significant unknown. At the same time, as a high degree of vaccination reduces the need for infection control measures, the interest rate committee believes that new virus variants could necessitate a new tightening of measures.
Underlying inflation has declined and is below the target of 2%. Increased activity in the Norwegian economy indicates that inflation will eventually pick up, the central bank expects.
Expecting a cooler housing market
The committee emphasized that low interest rates help bring production and employment back to more normal levels more quickly. This reduces the risk of unemployment rising to a high level and helps bring inflation back towards the target.
Real estate agents expect that price pressure in the housing market will ease across the country when the normalization of interest rates starts in a month’s time.
“The Central Bank’s clear signal of a moderate rise in interest rates from September contributes to the ongoing cooling of the housing market.
“This makes it somewhat easier to establish oneself in the housing market, and we expect that the proportion of first-time buyers will increase further through the autumn,” Carl O. Geving, CEO of the Norwegian Real Estate Association, said.
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