Norway plans to raise interest rates

Norway’s Central Bank has plans to make Norway the first developed country to move out of pandemic-era policy. It plans to raise interest rates by the end of 2021.

Norges Bank, the oil rich Norwegian central bank, announced its plans to boost interest rates from zero due to a faster-than-expected recovery in global economic activity and a significant growth in domestic house prices.

The Norwegian economy has endured the crisis very well and analysts are expecting a “reflation” period during which commodities countries are expected to perform well. This makes for a clearly bullish outlook on the Norwegian krone.

Despite Norway’s economy declining by 2.5% in 2020, the decline was less than almost all other nations in the region. Compared to the Eurozone Economy’s 6.8% decline last year, Norway remained resilient and proved it can limit loose monetary policy faster, analysts said.

The nation’s ability to withstand the shock, is mainly due to its sovereign-wealth fund, which manages over $1.2 trillion. The government made use of the fund for fiscal support and was not required to expand its debt. Last summer, the central bank more than tripled the amount of Norwegian krones bought daily on behalf of the government compared to the end of 2019. As the largest source of income for the country comes from its oil and gas industry, Norway’s gross domestic product and currency move along oil prices which surged by 20% this year due to expectations that oil demand will rise.

While investors were expecting a rise of interest rates from Norges bank, they did not expect it to happen this fast. Analysts stand divided, with optimists considering this move able to attract more foreign capital and others remaining skeptical as to whether Norway might be putting too much pressure on the currency by deviating too much from other central banks.

The country’s debt could attract investors as the central bank raises rates and yields rise at a time when other European bond yields lay in negative territory.

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