(Nettavisen) On Thursday morning, Norges Bank raised the key interest rate by a further 0.5 percentage points, up to 2.25 per cent. The Central Bank further writes that the interest rate will most likely be raised further in November.
– Now it’s serious, says Thea Olsen, consumer economist at Danske Bank Norge to Nettavisen, and continues:
– In less than a year, the interest rate has risen by two percentage points. This is the strongest rise in interest rates since 1998. The difference from that time was that the rise in interest rates came from already high levels. Now the interest rates come from zero. In addition to this, households have to deal with high electricity costs and price increases for food and fuel. That’s why it stings extra. Over the course of one year, a household with NOK five million in loans has had increased interest costs of NOK 80,000 a year, after tax.
– Can be scary
Chief economist at Sparebank1 SR-Bank Kyrre M. Knudsen says the double interest rate hike was no surprise, and in line with what the market believed beforehand.
– I think it is right to take in a little more now. It is important for confidence in inflation management and the financial system.
Knudsen adds that the current inflation is between seven and eight percent, which is far too high. If inflation does not go down, there could be a long period of higher interest rates.
– However, Norges Bank must have a cautious approach to this. They no longer go up gradually, as they have done in the past. In just over a year, we have gone from 0 to 2.25. The previous two interest rate hikes have not yet been implemented.
– The interest rate shock for people may be greater than Norges Bank is aware of. It can be scary.
Fears housing collapse
– We are seriously concerned about the consequences of Norges Bank’s aggressive monetary policy, where everything is about bringing inflation down quickly. If interest rates are raised too quickly and too much, unemployment can become so high and purchasing power so weakened that it triggers a housing recession in the form of a sharp drop in housing sales and housing construction, says managing director Carl O. Geving of the Norwegian Association of Estate Agents.
Geving fears that the current monetary policy is too strict.
– We fear that the current monetary policy will contribute to a stronger correction than necessary. Despite the fact that the interest rate effect has not yet fully hit the housing market, house sales have fallen across the board this year. New homes are down 20 per cent, second-hand homes are down 10 per cent and new holiday homes are down 55 per cent.
Read also: The Norwegian Tax Agency advises people to check their tax card
He adds that the Norwegian housing market is not immune to falls in housing values. Geving believes that there could be major consequences for the household economy and the social economy as such, if house prices fall a lot.
– The interest weapon is strong because Norwegians have most of their assets in property. Many have a high debt ratio and most have floating interest rates. We therefore fear the ripple effects of the prevailing monetary policy, concludes Geving.
Many cannot tolerate interest rate increases
The refinancing bank Bank2 says several people are struggling to get their everyday finances to pick up.
– Since the summer, we have experienced a significant influx of customers who are experiencing major challenges related to the everyday economy. There are several people who have said outright that they cannot tolerate another interest rate increase, and August and September are likely to be the two months with the most applications so far this year, says debt specialist Sebastian Mikolajczyk in a comment. He further adds:
– This interest rate increase on top of increased energy prices and increased living costs is really beginning to be felt for those who are already having a hard time.
Read also: List heap about petrol prices: – The concept of drunkenness has been given a new meaning
– No need to make it more difficult
Investor and former hedge fund manager Peter Warren was asked during the Oslo Business Forum whether we could end up with a mortgage interest rate of 12 per cent again, as was the situation in the early 1990s. He believes the system will collapse before we get that far:
– The economy cannot stand it, because the debt is too great. If that happens, we will all have less money to mess around with. Those who have been careful and saved will be better off than those who are at the very top of the margin. That is the problem. We have let it go too far. We always go too far, he tells Nettavisen during the Oslo Business Forum.
– I think you should hold off on a couple of interest rate hikes. The development we have in terms of costs is already doing that job. We don’t need to make this any harder than it is.
Highest in eleven years
The key interest rate in Norway has not been up to 2.25 per cent since December 2011. The interest rate increases so far this year have not been so strong in such a short time since 1998. But the increases come from historically low levels.
The banks quickly follow up by raising interest rates to customers. The first messages will probably come on Friday. The banks have a six-week notification period when they set the interest rates for existing loans.