Norway Is Seen Leading the Way in Post-Covid Interest Rate Hikes
Comment of the Day

December 18 2020

Commentary by Eoin Treacy

Norway Is Seen Leading the Way in Post-Covid Interest Rate Hikes

This article by Ott Ummelas for Bloomberg may be of interest to subscribers. Here is a section:

Norway has never cut rates below zero or experimented with quantitative easing, in part because most of its stimulus has been fiscal.

The krone, meanwhile, will end 2020 as the worst performing of the world’s 10 most-traded currencies, in part due to the economy’s reliance on oil. That exchange-rate weakness has helped push inflation above the central bank’s 2% target, with underlying annual consumer prices hitting 2.9% in November.

The central bank signaled that significant uncertainty remains, as the pandemic tightens its grip across Europe.

“The sharp economic downturn and considerable uncertainty surrounding the outlook suggest keeping the policy rate on hold until there are clear signs that economic conditions are normalizing,” Governor Oystein Olsen said in a statement.

Eoin Treacy's view

Norway is one of the wealthiest countries in the world so it has ample room to support the economy through fiscal measures. As the oil price continues to rebound it will further improve domestic economic conditions and raise the spectre of rising inflation. A stronger currency, particularly when it is coming off a low base helps to keep inflationary pressures in check. That may be the clearest rationale for any country considering raising interest rates. The challenge will be that it will become a magnet for investment flows.

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