How could rising interest rates affect Norway’s economy?

Norway's key policy interest rate will be raised from 0.5 percent to 0.75 percent, the country's central bank, Norges Bank, announced Thursday. Here's how it will affect everyday life.

Pictured is Oslo's skyline.
Here's how the interest rates will affect you. Pictured is Oslo's skyline. Photo by Einar Storsul on Unsplash

Norway’s central bank, Norges Bank, has decided to increase the policy interest rate from 0.5 percent to 0.75 percent.

The bank also announced there would be seven new interest rate hikes by the end of 2023. The next rate increase is set to happen in June.

“As we now assess the outlook and the risk picture, the key policy rate will most likely be raised further in June,” Ida Wolden Bache, governor of Norway’s central bank, Norges Bank, said in a statement

The policy rate going up means more expensive loans and mortgages for consumers. For every quarter a percentage point, the interest rate on your bank loan rises, your annual interest costs will increase by 2,500 kroner for every million you owe.

An interest rate of 0.75 percent means yearly repayments of 7,500 kroner per million of debt. For example, if you have a loan or mortgage of four million, the annual interest costs will be around 30,000 kroner per year. 

Banks and mortgage providers have a notice period of six weeks, meaning repayments won’t become more expensive until towards the end of next month at the earliest. When banks do raise their rates, they can choose to do so above the policy rate. 

One positive of rising interest rates is that it can slow down the growth of house prices as the purchasing power of the public is reduced. So while not great if you are looking to sell up soon, it does benefit those priced out of the housing market. 

“This is good because it helps to curb the unhealthy house price growth that has been triggered by historically low-interest rates and fewer consumer opportunities during the pandemic,” Carl O. Geving from the Norwegian Real Estate Association explained to financial media publication E24

Norges Bank predicted that house prices in Norway would rise by around 4.4 percent in 2022. Last year, house prices increased by 9.1 percent. 

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Record high food price rises drive latest inflation figures in Norway 

A sharp rise in food prices in July helped drive inflation in Norway over the last year to levels last seen in the 80s, figures released by Statistics Norway on Wednesday show. 

Record high food price rises drive latest inflation figures in Norway 

Norway’s consumer price index (CPI), which measures inflation, increased by 6.8 percent between last month and July 2021, the latest figures from Statistics Norway (SSB) show. 

There has not been higher growth in Norway since 1988. Significant increases in the price of food and fuel helped drive the inflation figures. From June to July, the price of food and non-alcoholic beverages rose by 7.6 percent.

“A historically high price increase for food and non-alcoholic beverages in July was clearly the most important reason for the rise in the consumer price index in July. We have never previously measured a similar price increase for food from one month to the next in the CPI,” Espen Kristiansen from Statistics Norway said of the figures. 

The previous largest monthly increase in the price of groceries was in July 1981, when prices rose 5.3 percent. Over the last year, food has increased 10.4 percent. 

Part of the explanation for the high increase in food last month was July is one of the two times a year when supermarkets have the opportunity to raise prices across the board following negotiations with suppliers. The other month supermarkets can make wholesale changes to their prices in February. 

Fuel also saw a huge rise of 47.4 percent over the last 12 months, although the cost of petrol fell by 4.1 percent over the last month. The cost of goods and services has also contributed to the CPI rising 6.8 percent during the previous 12 months. 

In a recent analysis, Consumption Research Norway (SIFO) at Oslo Metropolitan University concluded that one in three homes in Norway have worse finances now than they did in January this year.

READ MORE: ‘One in three’ Norwegian homes worse off than at start of 2022