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INTEREST RATES

Norges Bank trips markets by holding rates

Norway’s central bank has wrong-footed the markets by leaving interest rates unchanged, causing the krone to leap 3.37 per cent against the US dollar, its highest daily rise in six years.

Published: 19 March 2015 13:33 CET
Norges Bank trips markets by holding rates
Bank governor arrives for his annual Norges Bank address in February. Photo: Lise Åserud/NTB scanpix Norway o
Norges Bank's board announced on Thursday morning said it was keeping its key policy rate unchanged at 1.25 percent, a decision only one out of 19 economists surveyed by Bloomberg had predicted. 
 
The bank’s governor Øystein Olsen said in a statement that the bank had decided to keep rates stable because the reduction in interest rates it had made in December had yet have had a significant effect on the country's economy. 
 
“So far, the effects on the real economy have been relatively small, and house prices are still rising at a fast pace. The key policy rate has therefore been left unchanged", he said. 
 
He did however hint at further cuts to the policy rate in the coming months. 
 
"If economic developments ahead are broadly in line with that projected, there are prospects for a reduction in the key policy rate", he said. 
 
In its statement, the bank said that its board had decided that the rate should be kept between 0.5 percent and 1.5 percent up until at least the next report on 18 June 2015.
 
Central banks in neighbouring Sweden and Denmark have both slashed rates to historic lows in recent months as they seek to stave off deflationary spirals in their economies. 
 
Sweden's Riksbank this week announced that it was cutting its main rate to -0.25 percent, while embarking on a quantitative easing programme. 
 
Denmark's Nationalbanken, meanwhile, cut its deposit rate four times in three weeks in February, bringing it to an historic low of -0.75 percent, in an attempt to defend the Danish krone's peg to the euro. 
 
While Norway faces some of the same issues as its neighbours, it does not face the same strong deflationary pressures.
 
The government is also concerned that the housing market in the country is running out of control, raising the spectre of a future debt crisis.
 
Norwegians now owe twice as much as they make in disposable incomes, higher than ever before in the country’s history. 
 

ECONOMY

Sweden’s Riksbank raises rates above zero for first time since 2014

Sweden's central bank has increased its key interest rate to 0.25 percent, marking the first time the rate has been above zero for nearly eight years.

Published: 28 April 2022 08:11 CEST
Updated: 28 April 2022 11:26 CEST
Sweden's Riksbank raises rates above zero for first time since 2014

In a press release announcing the move, the bank said that it needed to take action to bring down the current high rate of inflation, which it predicts will average 5.5 percent in 2022, before sinking to 3.3 percent in 2023.

“Inflation has risen to the highest level since the 1990s and is going to stay high for a while. To prevent high inflation taking hold in price and wage developments, the directors have decided to raise interest rates from zero to 0.25 percent,” it said. 

The Riksbank, which is tasked by the government to keep inflation at around two percent, has been caught off-guard by the speed and duration of price rises.

Just a few months ago, in February, it said it expected inflation to be temporary, predicting there was no need to increase rates until 2024.

The last time the key inflation rate was above zero was in the autumn of 2014. 

In the press release, the bank warned that the rate would continue to increase further in the coming years. 

“The prognosis is that the interest rate will be increased in two to three further steps this year, and that it will reach a little under two percent at the end of the three-year prognosis period,” it said. 

According to the bank’s new future scenarios, its key interest rate will reach about 1.18 percent in a year, and 1.57 percent within two years. 

In a further tightening of Sweden’s monetary policy, the bank has also decided to reduce its bond purchases. 

“With this monetary policy we expect inflation rates to decline next year and from 2024 to be close to two percent,” the bank wrote. 

Annika Winsth, the chief economist of Nordea, one of Sweden’s largest banks, said the rate hike was “sensible”. 

“When you look at how inflation is right now and that the Riksbank needs to cool down the economy, it’s good that they’re taking action – the earlier the better. The risk if you wait is that you need to righten even more.” 

She said people in Sweden should be prepared for rates to rise even further. 

“You shouldn’t rule it out in the coming year. Then you’ll have a once percentage point increase which will go straight into fluctuating mortgage rates.” 

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