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What Norway’s latest interest rate increase mean for your finances

Norway’s central bank has raised the key policy rate to three percent. Here’s how that can directly impact your finances. 

Pictured is a piggy bank and house.
Here's how the latest interest rate rise will affect your finances. Pictured is a piggy bank and house. Photo by Tierra Mallorca on Unsplash

High inflation, high economic activity, high employment levels, and a weak krone were behind Norges Bank, the central bank of Norway, raising the key policy rate. 

Analysts predict the bank will continue raising the key policy rate to between 3.5 and 3.75 percent by this autumn. 

While the numbers may not seem massive, and the topic of interest rates may seem dry, these decisions can directly impact your finances. 

The most obvious and immediate impact of the rate increase means more expensive loan and remortgage repayments if you aren’t on a fixed-rate deal. 

A mortgage of around two million kroner can now be considered 2,900 kroner a month more expensive than a year prior. This will be noticeable in the payments you make in the coming months, as it usually takes the banks in Norway six to eight weeks to introduce higher rates. 

Around 95 percent of Norwegians have floating interest rates, meaning many will feel the squeeze of interest rates increasing in the coming months. The next hike from the central bank is likely to be announced in May. 

Following the hikes, many should expect a mortgage interest rate of around 4.8 percent by early next year. Meanwhile, Carsten Henrik Pihl from the Homeowners Association told the Norwegian newswire NTB that a mortgage rate of 4.5 percent could be considered a good deal. 

Mortgage rates are expected to remain at the peak of almost five percent for around the next two years, Nordea’s chief economist Kjetil Olsen told business news publication E24

Higher interest rates eat into disposable income. This means people will spend less than they would otherwise generally do and reduce the demand for homes, cooling the property market. 

“Interest expenses increase and eat away at disposable income so that it reduces purchasing power. This, in turn, reduces both housing demand and general consumption,” Nejra Macic from the Forecast Centre told E24. 

Lower demand for housing may result in property prices dipping or slowing down, which is good news for buyers who have trouble keeping up with soaring prices, but news for those who may have bought recently or plan on a quick sale. 

On a more macro-level, lower consumption may slow inflation, which Norges Bank has always intended to achieve with interest rate raises. 

Those who are young or single are most likely to feel the squeeze of the latest interest rate increases as they tend to have a higher ratio of debt to income, Macic explained to E24. The same could be true for those living in Oslo, as traditionally, the capital has the highest debt-to-income ratio in Norway. 

Additionally, the interest rates will also impact how much value you get for your kroner when you go abroad. Several factors are currently contributing to the krone being at its weakest level for several years. 

Among the factors is interest rates in Norway being lower than in the Eurozone and the US. This makes the krone less attractive than the euro and the dollar for investors. 

Even with the forecasted rises, interest rates are unlikely to be higher in Norway than in other countries. This has led to some analysts predicting that the krone would likely remain weak as interest rates would have to be hiked higher to boost the krone. 

“I do not believe that Norges Bank, through the interest rate differential, will be able to secure a stronger krone exchange rate over time,” Kjetil Martinsen, the chief economist for Swedbank, told Finansavisen

A weaker krone means you get less value for your money abroad, making foreign trips and holidays more expensive. A weak krone also makes imports more expensive, meaning that goods that aren’t produced in Norway become more expensive. 

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For members


How Norway’s struggling krone compares to other major currencies 

Norway’s weak krone means that trips, bills, and mortgage and loan repayments abroad are considerably more expensive than a year ago. So, how does the krone compare to other major currencies? 

How Norway’s struggling krone compares to other major currencies 

Norway’s krone is down significantly to other major currencies since the turn of the year and last summer. 

Energy and gas prices, higher interest rates abroad than in Norway, and an uncertain financial market all contribute to the weak krone. In the short term, at least, it looks like the krone might continue to struggle following a sharp drop last week. 

The euro

Currently (late May), a euro costs 11.82 kroner. This is considerably more expensive compared to the beginning of the year when the same currency would trade for one to 10.49 kroner. In June 2022, a euro cost considerably less at a low of 10.1 kroner. 

The bad news for those planning trips to Europe or with student loans or mortgages to repay in the euro is that it will continue to perform strongly against the krone. 

“Best case scenario is a euro of around 11.50 kroner. In the worst case, it will come up to 12.50 kroner (for a euro),” currency strategist Dane Cekov told Norwegian broadcaster TV 2

The pound

Compared to last year, the British pound has increased in strength to the kroner by more than 12 percent. Last year a pound cost 11.86 kroner. This year a pound is worth 13.36 kroner. Last autumn, the pound was considerably weaker against the krone, costing as little as 11.39 kroner. 

Over the past five years, the krone has weakened considerably against the pound (despite the pound’s struggles). In July 2018, you would have needed just 10.67 kroner to exchange for one pound. 

Readers who work in Norway and are paid in the krone but live in the UK have recently shared with The Local how this long-term downtrend has equated to a pay cut.  

The dollar 

Thankfully for some, the krone’s weakened strength against the dollar isn’t quite as pronounced as with other currencies. At the beginning of 2023, a dollar cost 9.84 kroner. Since then, the kroner has risen by just over 10 percent to 11.02 percent. 

However, compared to 2018, the krone is more than 26 percent less valuable against the dollar. The krone has typically remained strong against the dollar, with the exception of this year and 2020. 

The Danish krone

Denmark’s krone is tied to the euro, meaning it (like the euro) has become much stronger compared to the krone. Currently, 100 Danish kroner is worth 159 Norwegian kroner. 

September 2022 was a yearly high for the Norwegian krone against Denmark’s currency. Then 100 Danish kroner cost 122 Norwegian kroner. Compared to today’s prices, the Danish krone is 17 percent stronger than the Norwegian krone. 

The Swedish krone 

Unlike the Danish krone, the Swedish krone isn’t tied to the euro. Furthermore, the Swedish krona has weakened significantly

Still, the Swedish krona has weakened as much as the Norwegian krone, and Sweden’s currency has leapfrogged Norway’s in value. 

Over the past year, the Swedish krona has gone from being less valuable than the Norwegian krone to more valuable as of the spring. Currently, 100 Swedish krona costs 102 Norwegian kroner. 

The ten percent swing and food prices rising higher in Sweden than in Norway have led to a reversal in cross-border trade. As a result, fewer Norwegians are heading to Sweden to shop for groceries, and more Swedes are hitting the tills in Norway.