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
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
- 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