OSLO: Norway’s prime minister Jonas Gahr Store has signalled that he expects the country’s economy to achieve a “soft landing,” brushing off concerns about the potential fallout from faster-than-expected interest rate hikes by the central bank to combat price pressures.
The Nordic nation has “a controlled” system for collective wage bargaining, while the government has also limited inflation through subsidies for higher electricity costs, Store said in an interview.
He highlighted the division of labour with the central bank that mandates the government “to look after the most vulnerable and people with an exposed economy that they can manage” the transition to higher borrowing costs.
“If that works well, we will also be able to salute that we get more people back to work, unemployment is low, there’s growth this year and next year, and we can reach a soft landing in 2024, 2025,” Store said.
Norges Bank lifted the benchmark deposit rate on Thursday by 50 basis points to 1.25% - its biggest increase in borrowing costs in two decades that surprised most economists - and pledged accelerated tightening to stamp out surging inflation that’s at a 33-year high.
The move raised the risk of a hard landing, according to analysts at Swedbank, which referred to the change as “shock therapy”.
The expansion of Norway’s mainland economy will probably slow to 3.5% this year from 4.2% in 2021, and to 1.1% next year, the central bank forecast on Thursday.
That compares with its March forecasts of 4.1% and 1.6%, respectively.
Store also cited Norges Bank’s comments that the budget policy hasn’t added pressure to raise interest rates.
Together with finance minister Trygve Slagsvold Vedum, he has a responsibility to plan budgets that don’t drive up interest rates more than needed, Store told reporters at a news conference earlier last week.
People should be prepared that the current situation can last for some time, he said.
Central bank governor Ida Wolden Bache said she had “a great understanding” regarding concerns after quick rate increases, while seeking to downplay such worries, in an opinion piece for public broadcaster NRK.
“For some it can be demanding, but most households have the finances to service a higher interest rate on their loans,” she was quoted as saying.
- Bloomberg
Created by Tan KW | Mar 29, 2024
Created by Tan KW | Mar 29, 2024
Created by Tan KW | Mar 29, 2024