Surge in Libor Is Bringing Pain to Norwegian Borrowers

(Bloomberg) -- Norwegian households and companies are feeling the sting from policy choices across the Atlantic.

Growing U.S. deficits have triggered a deluge in Treasury bill supply, helping drive up the London interbank offered rate and a key dollar-financing indicator that feed directly into the benchmark Norwegian interbank rate.

If the surge continues, banks in the Nordic country may be forced to raise mortgage rates, perhaps giving the central bank pause as it prepares to tighten for the first time in seven years after the summer.

“What’s happening in the U.S. is infecting those countries that are tied to the dollar rate in some way or the other,” said Pal Ringholm, chief credit strategist at SpareBank 1 Markets in Oslo. “The problem is that we don’t have a crystal clear alternative.”

Norway’s money market rate is construed as a foreign exchange swap rate, and is largely influenced by external factors. Nibor rates are used a benchmark for about 1 trillion kroner ($127 billion) in floating rate securities, according to Stamdata.

Surge in Libor Is Bringing Pain to Norwegian Borrowers

The gyrations in the Norwegian money market rates is also once again prompting calls for an overhaul of the interbank market and how liquidity is managed. “We could see some adjustments from the central bank given the high volatility,” said Jostein Tvedt, strategist at Danske Bank in Oslo.

One thing the bank could do is to raise the 35 billion-krone liquidity target for the banking system, according to Tvedt.

Norway’s central bank is currently evaluating its liquidity policy as part of the 2017-19 strategy document, but it’s too early to draw any conclusions on what will come out of this work, Bard Ove Molberg, a central bank spokesman, said in an email. The bank is also forming a working group with banks to look at Nibor, with a first meeting scheduled for April, he said.

But the chief executive officer of DNB, Norway’s biggest lender, so far appears sanguine about the rising money market rates.

“We must relate to rates going up and down, and make sure that we continuously adapt our targets with market changes,” Rune Bjerke said in an interview in London last week.

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