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Norges Bank warned against further interest cuts

Svein Gjedrem, the head of the Norwegian Central Bank, should brace himself and stop giving more interest cuts, according to Arne Hyttnes, the director of Sparebankforeningen

As Gjedrem is gathering the troops for a board meeting in Norges Bank Wednesday, a number of economists are waiting for Gjedrem to make his seventh interest cut since December 2002.

However, according to Hyttnes, he should be very careful.

Do not lower the interest

“Sparebankforeningen thinks that Norges Bank should not decrease the interest at Wednesday’s meeting. The reason for that is indications of an upswing in Norwegian economy, and one should therefore wait and see what the effects of the last interest decrease was. Too much movement in the interest level would be unfortunate and can contribute to more instability than necessary,” Hyttnes said.

Hyttnes points to research presented by Statistisk Sentralbyrå, a national research agency, which indicates an increase of consumerism of as much as 5 percent next year, while Norges Bank’s last inflation rapport is based on a 4.5 percent level.

Hyttnes claims Gjedrem should keep his head cool, and even if the inflation numbers indicate a price increase which is currently way under the goal of 2.5 percent.

“Even if the inflation the last couple of months has been very low, the inflation in two years time is what should be the goal when Norges Bank decides on the interest rate. Therefore Sparebankforeningen questions if the low inflation we have today can be a basis for further interest cuts,” Hyttnes said.

Want to change Gjedrem’s mandate

Lately several economists have stated that Gjedrem’s mandate must be widened so that the interest rate also takes unemployment, manufacturing and exchange rate into account, not only prise growth.

The head of the central bank will present a report on money politics and the development of the price growth for the Minister of Finance, Per Kristian Foss, on Wednesday.

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