The governor of the central bank suggests more interest rate cuts next year

The most tension was linked to what Central Bank Governor Ida Wolden Bache would say about the interest rate path in connection with the interest rate decision on Thursday.

– We will probably keep the interest rate at 4.5 per cent for the rest of the year, she said.

The key interest rate has been at this level since December last year. Next year, loan customers can expect a decline. Wolden Bache says the time to cut is drawing near.

Norges Bank suggests that the key interest rate will gradually be lowered from the first quarter of next year. The prognosis now indicates a slightly faster decline through 2025 than from the previous monetary policy report. This could mean three interest rate cuts next year, with the possibility of a fourth.

Economists: Little chance of cuts this year

Both the decision and the rationale were as expected, says Chief Economist Kyrre M. Knudsen at Sparebank 1 SR-Bank. He believes the governor of the central bank still holds a slight opening for the first interest rate cut to come before Christmas, as inflation has fallen faster than expected. But most likely it will take until March, he believes, and refers to the weak krone.

– On the other hand, I believe that we will get as many as four interest rate cuts through 2025, says Knudsen.

NHO’s chief economist Øystein Dørum also believes that the krone exchange rate is the reason why Norges Bank is hesitating to cut. If interest rate cuts are to become relevant already before Christmas, the underlying price increase must continue to decrease and the krone must not weaken further, he points out.

– Norges Bank’s steadfastness now seems primarily to be based on one factor: the danger that premature interest rate cuts could trigger a new increase in price inflation, he writes in a comment on the interest rate decision.

Many Norwegian mortgage customers were probably disappointed considering a possible boost in purchasing power towards Christmas, comments Dørum.

– Even in the government offices there is no applause for this decision, when for over a year you have stated that you are pursuing an economic policy to bring the interest rate down, he notes.

– There is still a need to bring price inflation down

Wolden Bache says the key interest rate has contributed to cooling the Norwegian economy and curbing price inflation. Although inflation has leveled off, underlying price inflation has not fallen as much. Companies’ costs are still expected to grow, and a weaker krone will slow the further decline.

There is still a need for a tightening monetary policy to bring price growth down to the target within a reasonable time, says the announcement from Norges Bank.

If the interest rate is lowered too soon, inflation may remain above the target for too long. On the other hand, high interest rates can slow down more than necessary, they write further.

Norges Bank’s committee for monetary policy and financial stability acknowledges that there is uncertainty about how the Norwegian economy will develop. The committee has emphasized that price inflation has fallen, and that over time it has been lower than estimated.

– The underlying inflationary pressure may be weaker than we are currently assuming. If there is a prospect that price growth will come down to the target more quickly or we get a stronger slowdown in the Norwegian economy, the interest rate can be lowered more quickly than we currently envision, writes the committee.

-Tough for mortgage customers

The year 2024 will be the year with the highest interest rate level Norwegian mortgage customers have experienced in 15 years, notes consumer economist Magne Gundersen at Sparebank 1.

Norges Eiendomsmeglerforbund is concerned that Norges Bank is waiting too long and points out that housing investment has fallen dramatically. While Huseierne points out that many Norwegians are now struggling with high interest rates, at the same time as other housing costs are increasing.

– The mortgage interest rate will now continue to be above 6 per cent for many people. At the same time, other housing costs such as municipal taxes, insurance and maintenance costs are increasing, says Carsten Henrik Pihl, head of politics, society and sustainability at the consumer organisation.