LO – VG for interest rate attack on Norges Bank

Roger Bjன்rnstadt, chief economist at the LO, accused Norges Bank of treating the tax rate “incorrectly”.

– They contribute unnecessarily to higher interest rates, says Bjornstadt

He receives some professional support from Professor Steiner Holden.

– I do not think it is necessary or desirable to raise interest rates as announced by Norges Bank, says Holden.

Norges Bank announced on Thursday that there will be no interest rate hike now, but the rate hike they announced in March is stable:

They announced that seven interest rates could be raised by the end of next year, so the core interest rate will increase from 0.75 today to 2.5 per cent by the end of 2023.

– They argue that high inflation is a major reason for the announced interest rate hike. I think this is the wrong monetary policy because wage creation in Norway handles such inflation, says Bjன்rnstadt.

– Not right

He says Norges Bank sees more of what is happening abroad.

– Norges Bank contributes to stifling job growth in Norway due to imported inflation. This is not the right monetary policy.

He continues:

– If this is not clear in the order of Norges Bank, my message to the Government is that they should clarify the order.

– Are you saying that Norges Bank pays very little attention to the current situation in Europe and the economic situation in Norway as a result of the Ukraine war and gives more importance to the international economic situation?

– Yes, they warn that the interest rate for that type of price increase will increase. Such an interest rate policy is not correct. If Norges Bank thinks so, the order should be changed because they do more harm than good.

Calls for political debate.

– We are experiencing a completely extraordinary situation with inflation coming from international conditions, not the Norwegian economy. It is important that Norges Bank receives a clear message on how to handle such inflation within the inflation target.

Power and War

Norway has had a management target of 2.5 percent inflation since 2001. The inflation target is effective from March 2018 Fixed at 2 per cent.

He points out that the Solberg government was on the mandate of Norges Bank before changing this in 2018; One should not act on “individual, temporary obstacles” in price growth. It was replaced by the goal of greater productivity and employment.

– We should not oppose the current type of inflation, which is short-lived and has no major basis in the Norwegian economy, but is largely related to the effects of the war. Power shortages in Ukraine and Europe.

– Political influence?

– But was that word removed in 2018?

– Yes, but we need to look at shifting towards higher production and employment as a goal, which does not speak in favor of combating inflation as we see it now.

– It may appear when you suggest something unnecessary; Political Influence on Norges Bank’s Interest Rate Setting?

– No, but must have political influence over the objectives of determining interest rates – Order. It is the duty of the government to set targets for prudent monetary policy that considers wage creation to deal with inflation so that we can get more employment.

He adds:

– It would have been different if we had been like many other countries where you have a wage solution that does not take into account the negative aspects of inflation. But in Norway, wage solutions are an important tool, meaning that there is no need to use the same level of interest rate changes as the price growth regulator.

Bjørnstad says the interest rate should not be as high as Norges Bank plans.

– If the inflation we are currently experiencing appears to be temporary, he says we do not need all the interest rates that Norges Bank is planning.

Get the professor’s support

Steiner Holden, professor and head of the Department of Economics at the University of Oslo, says he has for some time supported Bjornstadt’s professional values, but he disagrees with Norges Bank’s criticism.

– I agree with Bjornstadt that job growth in Norway should not be hampered by import inflation, says Holden:

– In a situation where import inflation is high, it is important not to place too much emphasis on reducing inflation. A central bank that places too much emphasis on the inflation target could raise interest rates too much, and this could significantly weaken the economy.

He also believes that Norway does not need all the interest rate hikes announced.

– I do not think it would be necessary or desirable to raise interest rates to the extent announced by Norges Bank. Norges Bank’s interest rate path is consistent with the assumption that employment will continue to be high. I expect Norges Bank to cut the interest rate path if higher interest rates and other factors contribute to weaker employment growth than expected.

– Do you support him in his professional message, but do you believe Norges Bank will handle the challenge of imported inflation?

– I agree

– I agree that one should not impede employment growth due to imported inflation. I think Norges Bank also agrees with that, but the difference is that they expect more job opportunities.

He argues that uncertainty is currently high and that this is due to the different weights of what is important in interest rate estimates.

– Norges Bank writes that higher interest rates will ease pressure on the Norwegian economy, but employment will remain high. At the same time; If they raise interest rates as they are now, it will lead to a very weakening of employment growth. So, Bjørnstad has a good point.

– Palmer

பொருளாதாரystein Dørum, chief economist at the Norwegian Enterprise Federation (NHO), disagrees.

– I think Bjørnstad is wrong. Norges Bank will review temporary changes in inflation. They have to worry about long-term growth in inflation, so there will be balanced growth in the economy.

Doram says the uncertainty is too much.

– In all likelihood, Norges Bank has missed out and Roger may be right, raising interest rates lower than the central bank’s interest rate forecast in a couple of years. But today there is no reason to criticize Norges Bank’s interest rate policy.

– Choose not to stick yet

He points out that the central bank estimates core inflation at 2.5 percent and registered unemployment at 2.0 percent.

– They believe that there is good growth and high efficiency utilization in the Norwegian economy and they hope that it will continue. They believe inflation will be higher than the target during this period. But they still choose not to stick to announcing further interest rate hikes, Doram says they could have done.

Protects against interest rate hikes

Norås Bank spokesman Bård Ove Molberg says they choose to refer to what is stated in the assessment. Norges Bank Monetary Policy and Financial Stability Committee Following the recent interest rate results of Norges Bank, especially these two categories:

“Inflation management needs to be forward and flexible so that it contributes to higher and more sustainable production and employment, as well as resists the structure of financial imbalances.”

And:

“Monetary policy is comprehensive. The group’s assessment is that stabilizing inflation around the target in the short term indicates a further rise in key policy rates. Rising interest rates will ease pressure on the Norwegian economy, but employment is expected to remain high. Indicates that interest rates will rise gradually.