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Historically weak krone to lead to higher interest rates

The weak krone against most major currencies means that Norway’s central bank will likely raise interest rates to 3.75 percent and beyond this year,

Published: 9 June 2023 14:22 CEST

Pictured is central Oslo from above.

Interest rates will likely be raised in part thanks to a record weak krone. Pictured is Oslo City Centre from above. Pictured is central Oslo from above. Photo by Gunnar Ridderström on Unsplash

A struggling krone means it will take longer for inflation to fall in line with the two percent target set by Norges Bank, Statistics Norway (SSB) has forecast.

“The record weak krone exchange rate is putting parts of the economic policy in Norway to the test,” SSB researcher Thomas Von Brasch said of the krone.

“We estimate that the central bank will raise the interest rate by 0.25 percentage points in both June and September so that the peak interest rate will be 3.75 per cent in the autumn,” Brasch said.

Norges Bank has been using interest rates to try and control inflation in Norway. In May, prices were 6.7 percent higher than the same month a year before.

The cost of flights, food and rent were the main drivers of the inflation figures. Price growth on imported goods, caused by the weak, has also contributed to the increased prices in Norway.

Lower interest rates in Norway than elsewhere also drive a weak krone.

Norway’s largest bank, DNB, expects interest rates to be even steeper. It expects Norges Bank to raise the key policy interest rate by 0.5 percent in June. This would bring the key policy rate to 3.75 percent.

A number of economists have said that the inflation figures released Friday were bad news for the central bank.

“Norges Bank has a bigger job to do than what they have assumed so far,” chief economist for Nordea Markets, Kjetil Olsen, told Norwegian business newspaper Dagens Næringsliv.

He also predicted an interest rate peak of more than four percent.

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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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