KBN / Interest rate comment: We expect a new interest rate increase in March

Norges Bank kept the key policy rate unchanged at 0.50% at a meeting on Thursday 20 January. They said that interest rates would most likely increase at the central bank meeting in March. What will it be increased to then?

The key policy rate will then most likely be 0.75%.

Why?

The coronary epidemic is still a major uncertainty factor. Omikron can still be something that can make Norges Bank change its mind. As it looks now, this virus mutation contributes to a milder course of the disease. This may mean that society can return to a normal situation faster than was the case with the Delta variant.

The Norwegian economy in a faster normal situation will indicate that monetary policy is too expansionary according to Norges Bank. Thus, interest rates will rise to a more normal level. It is good to remind you that the central bank interest rate was 1.5% and the NIBOR interest rate was over 2% before the corona outbreak in March 2020, and that there was also a mode for further interest rate rises at that time. Increased electricity prices contribute to price growth, but beyond this Norges Bank is not significantly concerned about the slightly more long-term consequences of record high electricity prices. Norges Bank is concerned with inflation, and then primarily excluding e.g. electricity prices (CPI - JAE). This figure has risen more than expected this autumn and this indicates that Norges Bank will continue to raise interest rates throughout 2022.

Nibor interest rates

The market expects interest rates to rise to around 2% over 2 years. The NIBOR interest rate has already risen by 0.1% so far in January. If Norges Bank implements the interest rate changes envisaged, the NIBOR interest rate will end at a level in excess of 1.8% at the end of the year and thus around a doubling of the level throughout the year.