Central Bank Governor Ida Welden Bach will not promise anything about the interest rate

Everyone hopes that the interest rate has reached its peak after 14 consecutive increases, but Central Bank Governor Ida Welden Bache will not promise anything.

Ten days before Christmas, Central Bank Governor Ida Welden-Basch announced that there would likely be no further changes to interest rates until after the summer holidays.

Then she just had it Raise the key interest rate For the fourteenth time in two years – to 4.5 percent.

The latest rise came despite the failure of European and US central banks to raise key interest rates again.

Even if stocks are pointing in the right direction for Norway now, the central bank governor will not promise to raise interest rates. Surely that time is over.

– They are expectations, not a promise, and indicate the possibilities of improvement in the economy and the possibility of lowering interest rates after the summer vacation.

Maybe it will change

In contrast to a number of other central banks, the Bank of Norway also issues forecasts after interest rate meetings on how the bank envisages the key interest rate developing in due course.

-We never have a target for the same interest rate. We will always set it in a way that brings us closer to our monetary policy goals, which are low and stable inflation, bearing in mind that as many people as possible should be at work. So I stress that when there is new information about the situation in the Norwegian economy, interest rate expectations can change, says Welden Bache.

Wages will increase

In 2024, the Central Bank Governor does not expect any major setback in the Norwegian economy, but there will be rather low growth characterized by higher interest expenses for people, and A slight increase in unemployment rates.

As a result of the austerity measures left behind, we expect price growth to slow and wages to eventually rise faster than prices. The Central Bank Governor says that this will raise the purchasing power of families again and help grow consumption and revive activity.

Knows responsibility

Even if the key interest rate were adjusted by a quarter of a percentage point each time, which may seem confusing, it would be enough to push individuals and families from an orderly economy into an unmanageable debt chaos.

Norway's largest debt collection company, Credenor, reported in December that more people were experiencing increasing debt problems and with it a carelessness about piling bills.

Walden-Bash says she recognizes the responsibility she bears for the consequences that interest rate changes have on the individual. Although such decisions may seem brutal and harsh, they are necessary to reduce inflation. It argues that high and variable price growth is costly to the individual – and to society.

-We know the responsibility. The decisions we make affect people's finances. Of course they tell us this, and we know and understand that many people are concerned about interest costs being so high that many people are experiencing financial difficulties.

The run-up to the war in Ukraine sparked an energy crisis in Europe, contributing to sharp price increases and post-pandemic interest rate hikes.

Even before the two recent interest rate hikes in September and December, the Norwegian Institute for Consumer Research (Sifo) reported that one in eight households in Norway had low or very low food security.

I don't see a backlash

High prices and increased interest rates have led to many families facing problems in covering their expenses. Food queues have grown and become a topic that has been raised several times in Parliament.

– High and variable price growth affects society as a whole, but also particularly on low-income and lower-income people. So we raise the interest rate to reduce price inflation. It is a prerequisite for us to have a high employment rate and stable development of the economy over time, the central bank governor tells NTB.

Traditionally, a relationship has been established between an increase in the key interest rate and an increase in unemployment. However, one of Norges Bank's goals is for unemployment rates not to rise too high. So far, it may appear to have succeeded, even if unemployment rates have risen somewhat during the two years that interest rates have continued to rise.

– Regarding unemployment, we expect it to return to the same level it was before the pandemic. “Therefore, we are not painting a picture of a severe setback in the Norwegian economy,” she says.

Criticisms of LO

Walden-Bash and the four others on Norges Bank's Monetary Policy and Financial Stability Committee have been criticized for their aggressive interest rate policy. LO's chief economist Roger Bjornstad in particular accused the bank of setting the interest rate unnecessarily high in order to combat inflation that was imported from abroad.

The central bank must act when price inflation is higher than the target. Regardless of the source of that price increase, the central bank governor avoids this.

She says that inflation would have risen further in Norway and the floating krone exchange rate would have weakened further if Norges Bank had not tried to counter imported inflation.