Chief economist: This means that we avoid interest rate fluctuations

Tuesday 3 July 2018

Never in history, interest rates globally have been as low as in the last ten years. Chief economist sees few reasons why this will change with the first. But the economists are shrinking.

Interest rates continue to rise in the United States, and Øystein Olsen announced at the monetary policy meeting earlier this month that Norges Bank is most likely to raise interest rates in September.

With rising interest rates nationally and internationally, the discussion about a potential interest rate strike on the stairs.

Chief economist at Handelsbanken, Kari Due Andresen, is one of those who believes that interest rates will continue to be low.

“We see that there are three reasons why interest rates will keep moving forward: Demographic development, low productivity growth and demand for secure investment are all pulling towards this,” says Andresen.

More elderly people

In western economies, life expectancy continues to increase and people have fewer children. This means that the average population is older than it was before.

From the ages of 25 to 60, people save their income. Towards the end of life, they spend the money they have spared between from the age of 25 to the age of 60. When the average age of the population increases, the population conserves and consumes more of their income.

– We have a good overview of the demographic development. People are on average older, and this point draws towards continued low interest rates in the future, says Andresen.

Economic growth is driven by the fact that productivity in the economy is increasing. In the west, productivity growth has been lower than it was in the period when interest rates were at a higher level than today.

Handelsbanken sees no clear signs that productivity will increase in the future. Isolated also indicates that today’s interest rate situation is the new norm, says Andresen.

Since the financial crisis, many have either placed their money in the bank or invested in fixed income securities. Interest rates on these investments are kept low due to high demand.

– Demand for secure investments at today’s level will keep interest rates low. We see no obvious causes for this to change, “says Andresen.

Chief economist: This means that we avoid interest rate fluctuations

Never in history, interest rates globally have been as low as in the last ten years. Chief economist sees few reasons why this will change with the first. But the economists are shrinking.
<p> In Japan, the key rate has been below 1 per cent for over two decades. The Japanese economy is an example that economic growth may be moderate despite sustained low interest rates. </ P>

In Japan, the key rate has been below 1 per cent for over two decades. The Japanese economy is an example that economic growth may be moderate despite sustained low interest rates. Photo: Toshifumi Kitamura AFP

Interest rates continue to rise in the United States, and Øystein Olsen announced at the monetary policy meeting earlier this month that Norges Bank is most likely to raise interest rates in September.

With rising interest rates nationally and internationally, the discussion about a potential interest rate strike on the stairs.

Chief economist at Handelsbanken, Kari Due Andresen, is one of those who believes that interest rates will continue to be low.

“We see that there are three reasons why interest rates will keep moving forward: Demographic development, low productivity growth and demand for secure investment are all pulling towards this,” says Andresen.

debt Concern

Since March 2016, Norges Bank has kept its key interest rate unchanged at 0.5 per cent. Handelsbanken believes that for the first time in two years we will find that the interest rate is set.

Handelsbanken believes that interest rates will be raised by 0.25 percentage points at the next monetary policy meeting in September, and that it will be raised twice in 2019. Then they believe that Norges Bank will keep the key rate unchanged.

Norwegian households have a lot of debt on average. This makes them vulnerable to excessive interest rates. Excessive interest rates can lead to a higher proportion of Norwegian wages being paid, which in turn may have a negative impact on the activity in the Norwegian economy.

Naturally, Norges Bank wishes to prevent this, thus taking into consideration the debt situation of Norwegian households in the interest rate setting.

disagree

Erik Bruce, chief analyst of Nordea, does not share Andrew’s opinion about the future

interest rate developments.

– Nordea believes in one rate increase now in September and two next year. We have not made any forecasts beyond this. We believe that a steering rate of 2.5-3 per cent is right in the long run, says Bruce.

Nordea is critical of the three reasons Handelsbanken mentions. Bruce argues in particular about the arguments behind demographic development and low productivity growth.

Sparrows who previously contributed to lower interest rates now go to retirement. One can argue that this will cause us to get less savings, as this generation will go from saving its income to tearing out saved assets.

Low productivity growth can lead to higher inflation, as the increase in money in circulation may exceed the increase in the production of goods. If inflation is too high, the central bank will respond by setting up the interest rate to reduce inflation. It may be that this point draws towards a higher interest rate, not lower, Bruce believes.

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