Don’t expect lower interest rates any time soon

2023 has been marked by a great deal of uncertainty on the global stage. This uncertainty will continue to cast a shadow over the coming year, too.

And this makes it difficult to make any predictions, says Turið F. Arge, CEO of BankNordik.

“2023 saw no less than ten interest rate hikes by the European Central Bank [ECB], but no rate hikes were announced in its last two monthly meetings,” she says.

“In these past two meetings, the ECB stated that it is too early to start talking about rate cuts and that we should expect rates to stay as they are for a while.”

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She adds that the markets have priced in some rate cuts for 2024 but that it is impossible to predict if and when these cuts will come.

There are, however, no signs of further rate hikes in the near future.

“The interest rate hikes appear to have served their purpose, which is to bring inflation down. Central banks now believe that the target inflation rate of 2 percent will be reached within one or two years,” says Arge.

Turið Finnbogadóttir Arge, Bank Nordik, Turið F. Arge, Føroya Banki

Caption: 

Turið F. Arge, CEO of BankNordik

“As long as inflation is declining, further interest rate hikes are unlikely.”

When interest rates go up, borrowing gets more expensive. This makes it less appealing for people and companies to take out loans, so they spend and invest less money. As a result, the overall demand for goods and services in the economy slows down.

With less demand chasing after the same products, businesses lose their price-raising power and inflation eases.

Read the Faroese version of this article here.

More Faroese News in English.