How could rising interest rates affect Norway’s economy?

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
The policy interest rate in Norway will double to 0.5 percent, meaning that loans and mortgages will become more expensive, but the speed with which house prices rise could slow down. 

Norway’s central bank, Norges Bank, has decided to increase the policy interest rate from 0.25 percent to 0.50 percent as part of its wider strategy of raising rates to 1.75 percent by 2024. 

The bank said it was raising rates due to falling unemployment, the economy was recovering from the pandemic, and businesses’ capacity returned to normal levels. 

The policy rate going up means more expensive loans and mortgages for consumers. For every half a percentage point, the interest rate on your bank loan rises, your annual interest costs will increase by 5,000 kroner for every million you owe. 

For example, if you have a loan or mortgage of four million, the annual interest costs will increase by 20,000 kroner. 

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 said that despite current uncertainty following the emergence of the Omicron Covid variant, it was expecting to raise rates once again in the spring. 

“There is considerable uncertainty about the evolution of the pandemic and its effects on the economy. But if economic developments evolve broadly in line with the projections, the policy rate will most likely be raised in March,” Øystein Olsen, governor of the bank, said in a statement

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