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EXPLAINED: What rising interest rates in Norway mean for you

Loan and mortgage repayments in Norway are set to go up due to rising interest rates. Here’s what the increased rates mean for you and why it isn't all bad news. 

EXPLAINED: What rising interest rates in Norway mean for you
Rising interest rates won't just affect property prices. Photo by Eirik Skarstein on Unsplash

Norway’s central bank, Norges Bank, has decided to raise the key interest rate from zero to 0.25 percent as part of its strategy to bring interest rates up to 1.75 percent by 2024. 

“The normalisation of the economy indicates that it is now right to start a gradual normalisation of the key interest rate,” Øystein Olsen, governor of Norges Bank, said in a statement

On the surface, this might come as a blow to consumers, especially those who have taken out loans and mortgages in the past two years, as interest rates have been fixed to zero.

The hike means that mortgage repayments will become more expensive for the 109,000 first-time buyers in Norway who have never experienced rising interest rates before. 

Another knock-on of an increase in interest rates that will affect homeowners and house hunters is the slowing down of rising house prices and weaker purchasing power. 

“All in all, purchasing power will weaken. This, in turn, will lead to a more moderate development in the housing market and a weaker price development,” Carl Geving, CEO of the Norwegian Real Estate Association, explained to public broadcaster NRK

EXPLAINED: What do Norway’s rising house prices mean for you?

In addition, while billpayers may not notice the extra 0.25 percent interest initially, interest rates are expected to steadily increase for the foreseeable future. That is something consumers should always prepare for, Ola Honningdal Grytten, a professor of economic history at the Norwegian School of Economics, explained to NRK

“One should always expect that interest rates may rise. For example, if you take out a loan, you should think that you must have room for the interest rate to rise by 3-4 percentage points, compared with when the loan was taken out. However, not everyone does that,” he explained to NRK. 

In fact, Grytten thinks the rises should actually be met as good news. 

“As a nation, we should be happy that interest rates are on the rise,” he said. 

This is because interest rates rising from historically low levels is a sign that the economy is on the mend and beginning to bounce back from the Covid-19 pandemic. 

Norges Bank argues that the higher rate has been brought in because it is satisfied that the Norwegian economy has recovered from the pandemic. 

The reopening of society has given a marked boost to the Norwegian economy and activity is now higher than before the corona pandemic. Unemployment has fallen further, and capacity utilisation seems to be close to a normal level,” the bank said in a statement.

The Norwegian Confederation of Trade Unions (LO) said that gradual interest rate rises could have several positive effects. 

When rates rise, the value of the krone is expected to rise, which will make investing in Norway an attractive proposition, which can help create jobs and wealth in Norway. 

It also spells good news for those hoping to go on holiday or foreign residents wanting to visit home as a strong krone means better value for money when travelling abroad. 

However, Roger Bjørnstad, chief economist at LO, said that it was vital that rates weren’t increased too quickly. 

“It is essential that we do not go too fast now and see an abrupt reaction – both in the housing market and the foreign exchange market,” he told NRK

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For members


What Norway’s weak krone means if you are travelling this summer 

Norway’s krone is down considerably to almost all major currencies. This affects how cheap or expensive your trip in or out of Norway will be this summer. 

What Norway’s weak krone means if you are travelling this summer 

Compared to 30 other major currencies, the krone has weakened against all except the Argentine peso and the South African rand, according to an overview of the “expanded major” currencies from Bloomberg. 

The Norwegian krone is considerably weaker against the euro compared to a year ago. The cost of a US Dollar or UK pound has become over a krone more expensive since February. 

Norway’s krone is also down to the Swedish krona and Danish krone. The Danish krone is fixed to the euro, so it is performing well against Norway’s currency. Meanwhile, the Swedish krone has become more valuable than the Norwegian krone. 

Low gas prices, higher interest rates in other countries than in Norway, and uncertainty in the world financial markets have all contributed to Norway’s weak krone. The weak krone will have a massive impact on anyone with travel plans this summer. 

If you travel outside Norway, you can expect your travels to be considerably more expensive. 

“This year the holiday will be expensive. Plan your summer on the basis that you will get less for your money this year than you did last year – much less,” Cecilie Tventenstrand, savings and consumer economist for Storebrand, recently told Norwegian broadcaster TV 2

If you are travelling from Norway and your main income is paid in krone, you can expect everything to be more expensive due to the exchange rates. 

Insurance firm Fremtid has recently issued a reminder that cancellations due to the weak krone or low money in the account are not covered by their policies. 

“If you just change your mind, you will not get any money back on the travel insurance. Then you have to contact the travel operator and investigate whether you can get money back,” Therese Hofstad- Nielsen said in a recent press release. 

Consumer economist Tvetenstrand said that travellers from Norway to other countries should try to pay with a card this summer. 

“Always pay in foreign currency. If you pay in Norwegian currency, you pay a higher exchange rate. Always also pay by card, preferably a credit card – just remember to transfer money to it straight away. The exchange fee is often higher at the ATM,” she said. 

Things are a lot more optimistic if you are travelling to Norway this summer (unless you are paying in Argentine pesos or South African rand). 

You can expect better value for your money as your currency will likely strengthen against the Norwegian krone. This means a cheaper trip to one of the most expensive countries in Europe. 

One way to take advantage of the weak krone is to consider a bank account which doesn’t charge foreign transaction fees or allows you to transfer your currency into krone. This is much more helpful than exchanging for cash, as cash isn’t widely accepted in Norway. 

Therefore if you bring a large amount of cash, you could end up stuck with it and lose out when you exchange your leftover kroner back for your preferred currency. 

READ MORE: How tourists in Norway can take advantage of the weak krone to save money

One plus (or negative) is that the krone is unlikely to see a drastic strengthening anytime soon. Dane Cekov, an analyst with the bank Nordea, told E24 that the krone was likely to continue on its current trajectory. 

“We believe that the roller coaster ride will continue for the Norwegian krone through the summer,” he said. 

As an example, he predicted that one euro could cost as much as 12.3 kroner or more during the summer. 

Meanwhile, Nils Knudsen, the currency strategist from Handelsbanken, told TV 2 that the krone would struggle until the global economy picks up. 

“It is connected with the fact that we have not received any particularly good news from the global economy. Therefore, we need to have some good news before we can say that the krone can recover in the short term,” he explained.