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Is Norway still on track for interest rate cuts this year?

Interest rates have increased rapidly in Norway over the last few years before peaking in the winter. Increased interest has put the squeeze on consumers, so is Norway still on track to cut rates?

Published: 18 March 2024 12:25 CET
Oslo
Should consumers in Norway brace for new interest rate hikes in 2024? Or are rate cuts more likely? Photo by Geir Rognlien Elgvin on Unsplash

Norway’s key policy interest rate has increased dramatically over the past few years. Between September 2021 and December 2023 it was raised from the historic low of 0 percent to 4.5 percent. This took interest rates to their highest level since 2008. 

Rate increases have been pointed to by the central bank as the answer for a rising cost of living in Norway. While inflation is down from its October 2022 peak of 7.5 percent, there is still some ways to go to reach Norges Bank’s target of two percent. 

READ MORE: Three reasons to be optimistic about your finances in Norway

The implications of high (and rising) interest rates for Norwegian households are significant.

For instance, in a scenario where a homeowner holds a mortgage of 3 million kroner with a interest rate of 5.0 percent over a 25-year repayment period, their monthly payment would stand at approximately 17,600 kroner.

A good mortgage rate these days is around the 5.5 percent mark. Such a rate would translate to monthly repayments of 18,500 kroner.

If interest rates were to climb further, reaching 6.5 percent, the monthly payment would surge to approximately 20,300 kroner.

Inflation: What the most recent figures point to

Norway’s central bank will not cut rates unless there are signs that inflation is being brought under control. 

The price increase in Norway from February 2023 to February 2024 amounted to 4.5 percent, according to the most recent figures from Statistics Norway (SSB) published in March. 

Kyrre M. Knudsen, the chief economist at Sparebank 1 SR-Bank, told The Local Norway that those hoping for rate cuts can be somewhat content with last week’s inflation figures.

READ MORE: How Norway’s weak krone could affect your wages this year

“For the total inflation, the recent inflation figures were as expected. However, the good news was that core inflation fell significantly more than both the market and Norges Bank expected,” Knudsen said, explaining that this was good news for everyone hoping for a rate cut, as inflation ended up being lower than anticipated.

“Overall, these figures pull down the interest rate path and keep the hope of an interest rate cut in June alive,” he said.

What needs to happen for the central bank to cut its interest rate?

According to Sparebank 1 SR-Bank’s chief economist, two things would need to happen for a rate cut to materialise in June or July of 2024 – lower inflation or a slowing down of the economy.

“On Tuesday, the inflation figures from the USA came in higher than expected. This is a reminder that it takes time to reach the inflation target. Inflation has been slightly above 3 percent since last summer,” he said, noting that it would need to go down moving forward for rate cuts to take place.

Kundsen also said that the market expects unchanged interest rates in March and May but is still pricing in that the US Federal Reserve will cut interest rates in June.

“At the same time, figures like this make it somewhat more uncertain whether there will actually be a rate cut before the summer,” the financial expert said, adding that a lower policy rate in the USA and Europe in June would pave the way “for a Norwegian rate cut in September.”

“But if inflation continues to stay at this level, we have to see if Norges Bank has a basis for cutting in September,” he said.

READ MORE: What’s next for Norway’s weak krone?

Kjetil Martinsen, chief economist at Swedbank Norway, shared a similar forecast with The Local.

“A faster disinflationary path could, in isolation, lead to faster rate cuts – more towards a ‘normal’ level around 3 percent. Norges Bank needs to be confident that inflation is approaching the target of 2 percent,” and will stay there “over the medium term.”

There will be more confidence “once running inflation nears the target,” and “cost pressure, including a weak krone and high wage growth, recedes.”

“Hence, June will likely be too early for a rate cut unless an unforeseen slowdown in the economy occurs. We think September now is more likely to be the date of the first cut,” Martinsen said.

The prospects of a rate increase this year

Despite the ongoing debate, financial experts don’t think further hikes are likely in 2024.

“An increase is unlikely. As it looks right now, we expect a cut in the interest rate this fall. This means that most people will not notice a decrease in mortgage rates until late in 2024,” Knudsen told The Local.

“Therefore, people need to prepare for the interest rate level to stay at the current level for most of the year. But all the figures that come in affect the prospects. It can, therefore, change towards the summer,” he concluded.

Swedbank Norway’s chief economist, for his part, agreed that there is a “very low probability of another rate hike this year,” though he pointed out that one “should never rule out any scenario.”

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MONEY

EXPLAINED: How wealthy is the ‘average’ Norwegian? 

Norway is known for its high wages and stable economy. New figures have revealed the wealth of the average resident in the Nordic country. 

Published: 23 April 2024 15:50 CEST
EXPLAINED: How wealthy is the 'average' Norwegian? 

High salaries go hand in hand with the high cost of living in conversations about Norway.

However, other factors, such as high homeownership rates, indicate that there is plenty of disposable income for locals to save and invest in their futures. 

Previous studies have also suggested that Norwegians are the seventh wealthiest nationals in the world. 

Norway’s national data agency, Statistics Norway, has compiled its own set of figures indicating that the average Norwegian household has a net wealth of around 3.8 million kroner. 

Net wealth accounts for everything a person owns, including property, stocks, or cash, minus any debts or liabilities. 

The vast majority of this wealth was derived from the estimated value of property. This alone gives the average Norwegian an estimated wealth of 3.74 million kroner. 

READ ALSO: How much does an apartment in Norway cost?

The value of second homes was included, which skewed things as only around 10 percent of households owned a secondary residence. 

The average price of a home in Norway was 4.5 million kroner in March of this year, and house prices have increased substantially in recent years. 

Savings, cash, stocks and other capital accounted for 1.72 million kroner, giving Norwegians an average wealth of 5.46 million kroner. Average debts of 1.68 million kroner gave Norwegians an average net wealth of 3.8 million kroner.  

The figures from Statistics Norway were obtained using figures from tax returns for 2022, which were submitted in 2023.  

Those aged between 67 and 79 years old were the wealthiest generation in Norway on average. This is partly because they have more capital than most other groups and more expensive property. 

However, the most significant factor is the lower levels of debt. They had half the debt of the next richest group, those aged between 55 and 69. 

Younger age groups weren’t as wealthier as they had much higher debts and lower capital. 

Still, Norway’s wealthiest individuals significantly boosted the average. When using the median, the average Norwegian household had a net wealth of just under 2 million kroner. 

When the median was applied to capital, the figure was 339,300 kroner compared to the average of 1.76 million kroner. 

The large difference in capital was attributed to Norway’s wealthiest individuals significantly pulling up the average. 

“This is mainly due to large fortunes in shares and securities, where a few own very much. Shares and other securities and share savings accounts are assets with a median value equal to zero, which indicates that these are not important asset items for most households,” the report said. 

Money kept in the bank was still important for most residents of Norway, though. The median value of bank deposits in Norway was 215,000 kroner, compared to the average of 600,000. 

The gulf between the average value of property owned and the median was roughly 500,000, with the median being 3.25 million kroner. 

Furthermore, Norway’s median debt level was around 860,000 kroner compared to the average of 1.67 million kroner. Around 85 percent of Norwegian households were in some form of debt. 

Significant differences also exist between Norway’s wealthiest and poorest residents. Residents belonging to the country’s poorest ten percent had an average net wealth of almost minus 1 million kroner. 

Meanwhile, Norway’s wealthiest ten percent had a net wealth of 19 million kroner. The top 50 percent also owned considerably more than the bottom 50 percent. 

“Despite the former comprising 1.27 million households, while the latter comprises approximately 25,000 households, the bottom 50 percent own only 4 percent of the total net worth, while the top 1 percent owned as much as 22.3 percent in 2022,” the report read. 

There was also significant variation in wealth depending on household type. For example, a single mother or father with a child aged between 6 and 17 had a net wealth of 2.24 million kroner, compared to a couple with children of the same age with an average net wealth of 5.12 million kroner. 

Typically, households with more than one person had more money as more than one wage earner likely lived at the address. 

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