Norway’s central bank board has ignored some economists’ calls for a hike in interest rates. Just a day after even Prime Minister Jens Stoltenberg worried that Norwegians have too much debt, the bank nonetheless kept interest rates low on Wednesday, at their last meeting before the summer holidays set in.
It was no big surprise, really. The deputy chief of the board of Norges Bank, Jan Fredrik Qvigstad, had said after the last board meeting in May, when they also resisted raising rates, that he and his colleagues expected interest rates to “remain unchanged throughout the year.”
On Wednesday, his boss, central bank chief Øystein Olsen, followed up by announcing that the bank’s key policy rate would remain unchanged at 1.5 percent. That’s an historically low level, in place for the past few months, and some economists have suggested rates should rise to slow down the pace of borrowing. Olsen and his colleagues clearly disagreed.
Even though they conceded that economic development in Norway has been “slightly stronger than expected,” Olsen said that the turbulence and weak growth prospects abroad “suggest the key policy rate should be kept on hold.”
Øystein Dørum, chief economist at Norway’s biggest bank, DNB, equated it to “sitting still in the boat during turbulent times.” In line with Qvigstad’s comment last month, Dørum told Norwegian Broadcasting (NRK) that he expects interest rates will stay low. “The reason is that the world around us is uncertain,” Dørum said. “There’s a danger the debt crisis will accelerate.” That can make life more difficult for Norwegian business and industry.
Good times still rolling, for now…
Life otherwise continues to be far from difficult for most Norwegians, as the country’s oil-driven economy keeps growing, pay keeps rising and many are heading off on holidays while millions of Europeans head for the unemployment office. That worries Stoltenberg, who suggested at a traditional pre-summer meeting with reporters on Tuesday that times are almost too good in the country he’s led for the past seven years.
“I’m afraid that folks think that because we have oil, things will go well regardless,” Stoltenberg said. “We see the crises around us, in Spain, Greece, Portugal, Ireland … I’d like to remind everyone that our nearest neighbours, Sweden, Finland and Denmark, now have unemployment rates of 7-8 percent. Some of them have had to make tough budget cuts. So this is around us, it’s close, and the most important thing we can do is keep order in our own economy.”
Stoltenberg told NRK that he’s worried about high and rising household debt in Norway, where a tight housing market and strong demand have sent prices, and mortgage levels, soaring. The economists who urged higher interest rates an increase in rates as a tool for reducing loan demand, and overall debt.
That didn’t happen and rates now look likely to remain at historically low levels at least through the summer. Other current key figures in Norway, according to the state statistics bureau SSB, include an unemployment rate of 3 percent (compared to 10.8 percent in Europe and 21.1 percent in Greece), growth in first-quarter GNP of 1.1 percent (negative, -0.2 percent in Europe) and an inflation rate of 0.5 percent (2.4 percent in the euro zone).
Views and News from Norway/Nina Berglund
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