– What if Norges Bank had taken it seriously, and surprised the market, and said: “You know what? We will raise the interest rate, because we want a stronger currency. And if the currency does not get stronger, then we will set the interest rate even higher.” So says professor of social economy, Kjetil Storesletten, at the University of Oslo. The krone has weakened more over the autumn than the central bank has assumed, and after Trump’s victory on Wednesday, the dollar pulled further away from the krone. Several economists believe that Trump’s victory will mean that the interest rate cut in Norway will not come for the next six months, partly because the weaker krone will cause problems in bringing price inflation down to the central bank’s target of 2 per cent. In comparison, prices were 3 percent higher than a year ago in September. This is how a weaker krone can fuel price inflation A weakened krone creates problems in bringing down inflation in Norway in two ways in particular, according to economists such as UiO professor Storesletten: Everything we buy from abroad becomes more expensive: More expensive foreign currency causes the prices of imported goods to rise in Norwegian kroner. Wage pressure is increasing: A weaker krone makes everything we sell abroad more valuable. This increases profitability in industries exposed to competition, which sets the framework for wage settlement in Norway. A weak krone can therefore contribute to higher wages throughout Norway. Then companies without the krone advantage may have to raise prices to finance wage growth, while at the same time Norwegians with higher wages can increase demand in the economy. A strong signal that the interest rate will be raised is the only solution to overcoming the weakening of the krone and thereby reducing inflation, according to Storesletten. – I think that would do wonders, he says. Policy rate in percent The policy rate is set eight times a year by Norges Bank. The policy interest rate governs the interest rates in the banks, and affects your housing costs. The aim of raising the interest rate is for the high prices to come down again. The forecast tells us how Norges Bank thinks interest rates will develop in the future. Read more about sources and reservations here. A higher policy rate means increased expenses if you have a mortgage 2022 2023 2024 2025 2026 2027 Forecast Norges bank But everything points to an unchanged interest rate on Thursday But “no” economists, not even Storesletten, think the interest rate will rise on Thursday. Norges Bank has announced an unchanged interest rate of 4.5 per cent, and on the contrary said that the interest rate will fall during the next six months. The problem is that even the central bank does not believe that price inflation will fall to 2 per cent before 2027, according to the interest rate path from the September meeting. This suggests that Storesletten should be listened to, according to chief economist Elisabeth Holvik at Sparebank 1 Gruppen. Chief economist Elisabeth Holvik at Sparebank 1 Gruppen. Photo: William Jobling / news – If you are very strict with what Norges Bank is going to do, perhaps they should raise the interest rate now that we see the krone weakening, she says. But the krone only weakened against the US dollar after Trump’s victory on Wednesday, and strengthened somewhat against the euro. Therefore, chief economist Kari Due Andresen at Akershus Eiendom believes that Norges Bank can foresee the development. Chief economist and general manager of Akerhus Eiendom, Kari Due Andresen. Photo: William Jobling / news – In order to cause a large increase in imported inflation, it is not enough for the krone to only weaken against the US dollar, it is not such a large part of our import market. In that case, what we have to see is a significantly wider weakening of the krone, and it remains to be seen whether that will be the result of the election outcome in the USA, she says to news. Only western central bank that has not cut prices In Norway’s neighboring countries, inflation has fallen below 2 per cent. On Thursday, the Swedish Riksbank lowered the key interest rate by 0.5 percentage points to 2.75 percent. The European and American central banks have also cut interest rates this year. But Norges Bank has not started. Due Andresen is far more optimistic than Storesletten, and believes that Norwegians can expect interest rate cuts as early as March next year. – Norway is the only western central bank that has not started to lower interest rates. I still believe that the first cut will come in March, so I think what we have seen recently has been an overreaction, so that the results will not be as big as many people think, she says. Check what it costs Choose a currency: From Danish kroner To Norwegian kroner 159.70 Exchange rates from Norges Bank. Latest rate from 06.11.2024 Storesletten, on the other hand, believes that the krone may weaken further, and the central bank should in any case say that they are postponing the next planned interest rate cut. – With such a weak krone, even if inflation is close to the target now, it creates a lot of inflationary pressure in Norway, he says. Published 07.11.2024, at 09.09 Updated 07.11.2024, at 09.33
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