OSLO (Reuters) - Norway could become the first country to raise interest rates following the COVID-19 pandemic, with a hike likely to come in early 2022 to prevent an overheating of the housing market, the country's biggest bank, DNB, predicted on Thursday.
Norges Bank cut rates three times from March to May as it sought to cushion the economy from the effects of the coronavirus, but said in June that its prospects were improving faster than expected and that a hike could come in late 2022.
In all, the central bank will probably lift the cost of borrowing three times in the next several years, from the current zero percent to 0.75% by the end of 2023, DNB Chief Economist Kjersti Haugland said.
"Even though the Norwegian upswing will ... slow down in the time ahead, there is reason to believe that the housing market will remain solid," Haugland wrote as DNB released updated economic forecasts.
"This indicates that Norges Bank will move ahead of the other central banks and start hiking as soon as in early 2022, more than half a year earlier than its own current prediction," she added.
DNB believes the global economy will contract by 3.9% this year, exactly in line with its forecast for the Norwegian economy.
Next year, the world economy will likely expand by 5% while Norway will see 3.5% growth, the bank added.
In January, before the coronavirus turned into a worldwide pandemic, DNB had forecast the global economy to expand by 2.9% in 2020 and 3.1% in 2021, while growth in Norway was predicted at 1.9% and 1.5% for each of the years respectively.
(Reporting by Terje Solsvik, editing by Gwladys Fouche)