Tomorrow will bring interest rate decisions from both Norway and Sweden. However, the two countries differ as Sweden is expected to raise its benchmark rate while Norway will most likely hold interest rates steady.
Economists forecast Sweden’s Riksbank will increase its repo rate by 0.25 basis points to 1.25%. Norway’s Norges Bank is expected to maintain its deposit rate at 2%.
One reason for the expected rise in the Swedish interest rate is the spike in housing prices. For the past 18-consecutive months housing prices have risen. Over the last 3-months alone housing prices are up 5%. Housing prices in Norway have also turned sharply higher rising 6.2% this year. The spike in housing prices may have been caused by interest rates being held too low by both nations during the financial crisis of the past 2.5 years.
A sharp jump in housing prices has been accompanied by lower than expected inflation as the Riksbank targets annual inflation of 2% while the Norges Bank targets 2.5%.
As both countries move towards a tighter monetary policy both the Norwegian and Swedish krona may benefit as the interest rate differential widens between the Nordic countries and the rest of the world. Currently the ECB has interest rates set at 1.00% while the US keeps its interest rate below 0.25% along with engaging in further loosening of monetary policy.
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Russell Glaser is a Currency Analyst with ForexYard. Russell provides analysis in the FX spot market by employing fundamental research methodologies. In addition to currencies, Russell closely follows the correlation between the Commodities market and the movement of equities. His writings have been published on the ForexYard Trading Blog and associated partner sites. Prior to joining Forexyard, Russell Glaser served as a management consultant in the financial services industry, advising Fortune 100 companies. Russell holds a degree in finance from the Fisher College of Business at The Ohio State University.
