The United States most likely sets interest rates, while in Norway it remains unchanged. However, this means that the mortgage rate can tick slowly, but surely upwards. This month, there is an interest rate meeting both in Norway and in the US. The central bank in the United States meets on March 15, and Norges Bank on March 16. We expect that interest rates in the US will be set at 1 percent. Central Bank Governor Janet Yellen stated last week that it would probably be an «appropriate» level.
The central bank has announced that there will be three interest rate increases this year. With a first rate hike already in March, and prospects for good growth in the US economy, the risk of more than three increases this year is increasing. Increased probability of several interest rate increases in the US, together with stronger growth prospects and higher government debt, have contributed to higher bond yields in the US.
Unchanged interest rates in Norway
Norges Bank will probably keep the interest rate unchanged at the monetary policy meeting on 16 March, and say that there is still a small probability of an interest rate cut to. We believe it is wise to prevent the krone exchange rate from strengthening too much. With political turmoil in Europe, and uncertainty about Italian banks. It may be tempting for some in Europe to place money in a safe place like Norway.
But the borrowing rate can rise for it
In Norway, there is a savings deficit in the private sector. Norwegian banks must therefore borrow money abroad to lend further to mortgages and businesses. When interest rates rise in the global bond market, the funding rate for Norwegian banks will rise. This means that the interest rate for Norwegian borrowers may rise, regardless of what Norges Bank does with the key policy rate.
Rising mortgage rates, increased taxation of property, higher newbuilding activity, and more tightening of housing loans will all contribute to reducing the rise in real estate prices. Although there is sluggishness in how quickly an interest rate rise in the global bond market will enter the mortgage rate, Norwegian households are vulnerable because the vast majority have floating interest rates.
Although we believe interest rates will remain relatively low for a long time, the risk of higher bond yields has also meant that the risk of higher borrowing rates in the long term has increased significantly. It is a good argument that Norges Bank can give a good time when they are to raise their interest rates to a more normal level.
