Norway Central Bank Hikes Rates By 0.25% To 1.75%, Gives Clueless Bernanke A Hint

Tyler Durden's picture

While Bernanke is preparing to hit the TV circuit (after hiring Obama's exhausted teleprompter team) to cash in on his Time Warner accolade, even as he is set to do nothing at all about the liquidity bubble forming in every aspect of the economy, the much more logical and efficient country of Norway is doing the right thing, and in making sure its economy does not overheat, has raised interest rates by 0.25% to 1.75%. The target rate: 1.25%-2.25%. In other news: Goldman Sachs is not moving to Oslo.

Full Norges Bank statement:

Meeting 16 December 2009

Economic developments

The Executive Board has placed emphasis on the following new
information that has emerged since the previous monetary policy meeting
on 28 October:

  • In the third quarter, activity increased in the US, Asia, the euro
    area and Sweden, while it continued to fall in the UK. At the same
    time, unemployment is high with substantial spare production capacity.
    The OECD projects a fall in GDP for OECD economies of 3.5 per cent in
    2009 and a rise of 1.9 per cent in 2010, thus revising up its June
    growth projections by 0.6 percentage point in 2009 and 1.2 percentage
    points in 2010.
  • Inflation among Norway’s trading partners is close to zero. In the
    euro area and China, prices are now higher than a year ago, while the
    level of prices continues to fall in Japan. In many countries,
    different indicators of underlying inflation are still in the interval
    1¼ - 2 per cent.
  • Market rates indicate that market participants expect central bank
    key rates in the US, euro area and the UK to remain unchanged in the
    period to summer. Key rate expectations 12 months ahead have fallen in
    the US and the euro area by about 25 basis points, while they remain
    unchanged in the UK. Australia’s central bank has raised its key rate
    in three steps, the first time on 6 October, by a total of 0.75
    percentage point to 3.75 per cent.
  • Long-term government bond yields have fallen in many countries. In
    the UK, Greece and Ireland, government bond yields have edged up and
    prices for insurance against government debt default in countries such
    as Greece and Ireland have risen. 
  • In Norway, three-month money market rates remain approximately
    unchanged. Three-month money market premiums have fallen by 0.1
    percentage point and have so far in the fourth quarter been somewhat
    lower than assumed in the October Monetary Policy Report. The interest
    rate differential against trading partners remains approximately
    unchanged at 1.5 percentage points. 
  • According to Norsk familieøkonomi, mortgage lending rates have been increased by 12 of 20 banks (1)
    . Weighted residential mortgage lending rates have increased by 0.12
    percentage point. According to Statistics Norway, average bank lending
    rates to households were 0.18 percentage point lower in 2009 Q3 than in
    Q2.  Average corporate lending rates were 0.26 percentage point lower
    in 2009 Q3 than in Q2.
  • The import-weighted krone exchange rate index (I-44) has
    depreciated by 1.0 per cent. So far in the fourth quarter, the krone
    exchange rate has been 0.4 per cent stronger than projected in the
    October Monetary Policy Report. 
  • The main stock indices have advanced. The Oslo Børs benchmark index
    has gained about 12 per cent. The turmoil sparked by the company Dubai
    World’s debt problems resulted in a temporary decline in international
    equity markets and long-term government yields. The price of credit
    default swaps for Dubai and for finance companies in Europe and the US
    showed a marked increase.
  • The spot price of Brent Blend oil has decreased somewhat. In the
    past five trading days, the spot price has averaged USD 72 per barrel.
    Futures prices for 2010 have been USD 77 per barrel over the past five
    trading days. 
  • The Economist commodity-price index has increased by 6 per cent in XDR (2) terms. In the same period, dry cargo freight rates increased by 23 per cent. 
  • The year-on-year rise in the consumer price index (CPI) was 1.5 per
    cent in November. Adjusted for tax changes and excluding temporary
    changes in energy prices (CPIXE) consumer prices rose by 2.3 per cent.
    Adjusted for tax changes and excluding energy products (CPI-ATE), the
    rate of increase was 2.4 per cent. Other indicators of underlying
    inflation ranged between 2.5 and 2.7 per cent. Underlying inflation has
    been broadly as projected in the October Monetary Policy Report. 
  • According to Perduco’s expectations survey for 2009 Q4, inflation
    expectations one year ahead have edged up. Long-term inflation
    expectations have fallen. 
  • Seasonally adjusted registered unemployment was 2.9 per cent in
    November, unchanged on October and approximately as projected in the
    October Monetary Policy Report. According to Statistics Norway’s labour
    force survey (LFS), both unemployment and the labour force contracted
    by 2000 from August to September, after falling by 13 000 and 12 000
    respectively in the previous month. The contraction in employment from
    July to September was somewhat more pronounced than expected in the
    October Monetary Policy Report.
  • Preliminary seasonally adjusted figures from the quarterly national
    accounts show that mainland GDP grew by 0.5 per cent from 2009 Q2 to
    Q3, as projected in the October Report. Growth was solid in private
    consumption, traditional merchandise exports and public sector demand,
    but gross private sector investment showed a marked decline. 
  • In November, the enterprises in Norges Bank’s regional network
    reported moderate output growth. They expect growth to continue at the
    same moderate pace ahead. Employment is stable and is expected to be
    unchanged ahead. Operating margins had declined somewhat, although to a
    lesser extent than in the previous rounds.
  • According to preliminary seasonally adjusted figures from the
    quarterly national accounts, household consumption increased by 1.1 per
    cent from 2009 Q2 to Q3. Spending on goods showed the strongest rise.
    The index for household spending on goods rose by a seasonally adjusted
    2.7 per cent from September to October. This is somewhat higher than
    assumed in the October Report. The number of new car registrations
    increased by 45.5 per cent in the year to November 2009. TNS Gallup’s
    trend indicator, which measures consumers’ perceptions of and
    expectations concerning their own financial situation and the country’s
    economy, rose from 11.6 points to 16.4 points from 2009 Q3 to Q4.
  • According to seasonally adjusted preliminary figures from household
    income accounts, the household saving ratio excluding dividend income
    rose from 5.7 per cent in 2009 Q2 to 6.5 per cent in Q3. Over the past
    ten years, the household saving ratio excluding dividend income has
    averaged 0.6 per cent.
  • Gross domestic debt (C2) in the private and municipal sector
    increased by 5.1 per cent in the 12 months to October this year. The
    corresponding figure for September was 5.5 per cent. Growth in credit
    to non-financial enterprises is still decelerating, while household
    credit growth picked up in October. Non-financial enterprises’ holdings
    of liquid assets (M2) increased by 2.5 per cent in the year to October
  • According to house price statistics from the real estate industry,
    house prices rose by a seasonally adjusted 1.2 per cent in November.
    House prices have increased by 15.1 per cent since the trough in
    November 2008. Since the peak in June 2007, house prices have risen by
    3.7 per cent. 
  • According to building statistics, the number of housing starts fell
    by 9.6 per cent in the 12 months to October 2009. Measured by utility
    floor space, housing starts remained approximately unchanged.
    Seasonally adjusted, the number of housing starts was 1622 in October,
    down from 1629 in September but up from 1586 in August. The number of
    other building starts has risen for three consecutive months. According
    to order statistics for the building and construction industry, the
    value of new orders remained unchanged from 2009 Q2 to Q3. Seasonally
    adjusted, the value of new orders increased by about 9 per cent. 
  • Manufacturing production fell by a seasonally adjusted 1.5 per cent
    from September to October after a rise of 2.1 per cent in the previous
    month. Manufacturing production was a seasonally adjusted 1.5 per cent
    higher than in 2009 Q3 than in Q2. The industrial confidence indicator
    in Statistics Norway’s business tendency survey rose from -7 to -5.
    Managers expect output and employment to fall in 2009 Q4 and new orders
    are expected to level off.
  • According to order statistics for manufacturing, the value of new
    orders increased by 3 per cent from 2009 Q2 to Q3. Export orders rose,
    while orders in the domestic market fell. The value of order stocks
    decreased by 7.0 per cent in the same period. 
  • According to Statistics Norway’s investment intentions survey for
    manufacturing, mining and electricity, estimated manufacturing
    investment in 2009 is 30 per cent lower than the estimates for 2008
    published at the same time last year. Estimated manufacturing
    investment for 2010 is 22 per cent lower than in the 2009 survey. For
    most manufacturing sectors, estimated investment is considerably lower
    than in this year’s survey.
  • According to the Q4 investment intentions survey for oil and gas
    production, investment in petroleum activities in 2009 is estimated at
    NOK 141.2 billion, i.e. value growth of 11 per cent compared with the
    estimate for 2008 published at the same time last year. Investment for
    2010 is estimated at NOK 138.5 billion, which is 5 per cent lower than
    the estimate for 2009 published at the same time last year.



Growth has revived in the global economy and activity is now also
picking up in the US and in most European countries. Prices for oil and
other commodities remain high and financial markets are functioning
more efficiently. Even though growth has picked up, there are no
prospects of a strong recovery.  Economic developments ahead are still
uncertain, particularly in countries with large government deficits. We
expect only moderate growth ahead in the US and Europe. In a number of
countries, key rate expectations are still low and have edged down
since the previous monetary policy meeting.

Monetary policy is oriented towards consumer price inflation of
close to 2.5 per cent over time. Consumer price inflation has been as
expected. Underlying inflation is close to 2.5 per cent, but will
probably fall in the period to summer, partly as a result of the krone
appreciation earlier this year. The krone exchange rate has now
stabilised, broadly in line with projections in the October Monetary
Policy Report. As a result of low productivity, higher costs in the
corporate sector, growth in household demand and higher capacity
utilisation, consumer price inflation will gradually move up again.

Activity in the Norwegian economy has rebounded approximately as
expected. Capacity utilisation is lower than normal, but it appears
that the downturn will be fairly mild. Growth in private consumption is
strong and house prices are rising sharply. Export growth is picking up
somewhat more rapidly than expected. Unemployment remains at a
relatively low level.  On the other hand, recent investment intentions
surveys indicate that corporate and petroleum investment may be
somewhat lower than estimated. The enterprises in Norges Bank’s
regional network expect moderate growth in output ahead.

The Executive Board’s strategy is that the key policy rate should be
in the interval 1¼ - 2¼ per cent in the period to the publication of
the next Monetary Policy Report on 24 March 2010 unless the Norwegian
economy is exposed to new major shocks. The analyses in Monetary Policy
Report 3/09 indicate that the key policy rate should thereafter be
raised gradually. Higher capacity utilisation or a weaker krone may, on
the one hand, result in higher-than-projected inflation. On the other
hand, inflation may be lower than expected if the krone remains strong
or productivity picks up rapidly. Should the krone appreciate
considerably more than projected, the interest rate may be increased to
a lesser extent or later than currently envisaged. 
developments have been broadly in line with projections. The Executive
Board considered the alternative of keeping the key policy rate
unchanged, but interest rates are low and the October increase in the
key policy rate has had a limited impact on bank lending rates. At the
same time, the upturn abroad and in Norway has, as expected, gained a
firmer foothold and the outlook for next year seems less uncertain. On
the basis of an overall assessment, the Executive Board decided to
increase the key policy rate at this monetary policy meeting.


The key policy rate is raised by 0.25 percentage point to 1.75 per cent with effect from 17 December 2009.



1)   New variable-rate residential mortgages of NOK 1 million, within 60% of purchase price

2)   Special drawing rights, IMF. As of 14 December XDR 1 = NOK 9.17

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
lsbumblebee's picture

I wonder. If Ben visited Norway, would he be named National Geographic's Man of the Year?

I need more asshats's picture

Quite possibly the Nobel Prize for what it's worth anymore...

10044's picture

Yeah, the problem is Shalom was 'born' clueless!

bugs_'s picture

Has Norges paid back the injection of capital

they received from Helicopter Ben in September


Señor Tranche's picture

Aside from the Nobel Prize Committee, Norway is an excellently run country.  Around 9% surpluses in current account and budget balance.  Unemployment <4%.  GDP per capita: $91K (57K PPP).  Sure, the oil helps, but the fact that the government has shown the restraint to keep its finances in order (Saudi Arabia runs deficits) speaks volumes.  I wish I had learned to speak Norwegian. 

SteveNYC's picture

Norway and Australia, two of the best-run countries. I'll take Australia for the weather though.......


.....Aussies may have some housing issues down the track however......

Anonymous's picture

This motion no doubt carried despite Iceman Mishkin's misgivings.

Anonymous's picture

Norwegian Portfolio Currency Overlay Makes sense and money. They have the lowest CDS spreads around.

Reductio ad Absurdum's picture

Norway lives off oil wealth. Don't draw too many conclusions from what they do.

A Man without Qualities's picture

No, you have got this wrong.  If you actually look at the trade data, and the economy, what is interesting is Norway uses its oil wealth to save for the future.  Ex. oil and gas, they have a balanced current account, and use the revenues from oil to build a massive SWF, which is actually owned by the citizens, rather than the personal piggy bank of some guy with a penchant for bejeweled motor vehicles or football clubs.

But the US could never be Norway, the taxes are too high and there is socialized medicine and they spend far too much time worrying about silly stuff like balancing budgets.

Anonymous's picture

Be aware that Norway produces roughly 100% of it's annualised power consumption by hydro power. Free surplus energy is the source of Norway's wealth, not so much what they do. Because that basically is -besides family live, hiking, and skiing- just making sure to leave office at 15h30 as a daily routine.

It is more what they don't do, trying to stay clear of Dutch disease, see the FT article "The Iraqi who saved Norway from oil":

Question now is where do you put all that oil money to work? They tried Lehman bonds last year, but that didn't work so well.

Maybe Norway should play the contango by leaving the oil in the ground instead of pumping it up and bartering it for soon-to-be worthless pieces of US paper.

Anonymous's picture

''Ex. oil and gas, they have a balanced current account, and use the revenues from oil to build a massive SWF, which is actually owned by the citizens, rather than the personal piggy bank of some guy with a penchant for bejeweled motor vehicles or football clubs.''
No, this is false. The norwegian people will most likely NEVER see anything of these money. Our schools and nursery homes are rotting. Our roads are becoming trails again. These money are NOT for the people, and the government has told us exactly that. It's a basically a fund for globalists.

A Man without Qualities's picture

You're right, there is a deficit ex oil and gas, but not massive..

tip e. canoe's picture

i'm beginning to think that the norwegians are just helping the emperors out of their clothes.   must be something in that arctic melt water (or the sky spirals).

trx's picture

Water: Sulfid Acid

Sky: Russian Missiles