Global crisis may affect Norway rates - NCCG.ORG Ning Network Archive 2008-10

By John Acher and Terje Solsvik

OSLO (Reuters) - The global financial crisis is deeper than foreseen just a month or two ago and lower international growth will affect Norwegian interest rates, Norway's central bank Governor Svein Gjedrem said on Thursday.

Oil-rich Norway has enjoyed a five-year boom, culminating last year in breakneck 6.2 percent growth of the mainland economy -- excluding the offshore oil sector and ocean-going shipping. But signs of a slowdown have emerged since mid-2007 and growth is seen slowing considerably this year.

Gjedrem said the top priority for Norges Bank, the country's central bank, was to ensure a functioning credit market and that the bank could dampen but not prevent the effects of the crisis which was spreading from abroad.

His remarks on Norwegian television came at the end of another turbulent day in the money markets and a new liquidity injection by the bank of 71.1 billion Norwegian crowns (6.8 billion pounds) to keep the system functioning.

He vowed to continue providing adequate liquidity.

"We will ensure that banks have money in Norges Bank to maintain loan activity," Gjedrem said on a current affairs programme aired by national broadcaster NRK.

"The most important thing is to ensure that banks have access to money," he said.

"It is deeper and even stronger than we could have predicted one to two months ago," Gjedrem said of the international crisis on Norwegian TV 2 news.

"If the crisis is not handled well in the United States and Europe, it may also have serious consequences in Norway," Gjedrem told national broadcaster NRK TV news in a rare appearance on back-to-back news programmes.

"It looks like there will be lower growth internationally. That is one point that we will factor into our (monetary policy) decisions," Gjedrem told TV 2.

He declined to say what the bank would decide on rates at its next policy meeting at the end of this month, TV 2 said.

Norwegian short-term market interest rates have jumped in recent days amid the global crisis, as dollar credit has dried up and banks have grown wary of lending to one another.

"We are contributing to making the credit market work," Gjedrem said on NRK news. "That is the priority now."

"We can dampen the impacts (of the international crisis), and that is what we are doing," Gjedrem said.

With market rates far above Norges Bank's target market rate of 5.75 percent, which is also its official policy rate, the bank has made heavy injections of liquidity into the Norwegian market in recent weeks to keep the system from seizing up.

HOME LOAN 'TEST RATE' JUMPS

Applicants for new home loans are being tested by banks for creditworthiness at rates approaching 11 percent.

Gjedrem said such a rate on housing loans was "unrealistic."

Actual rates on home loans now average around 7 percent to 8 percent.

Norway's tomorrow/next rate soared to a new 2008 high of 8.03 percent at Thursday's daily fixing from Wednesday's 7.66 percent, though one-month cash rates dropped to 8.38 percent from 9.13 percent.

Later interbank quotes showed the T/N rate easing to 8.01 percent. Three-month rates fell to 7.77 percent at the noon fixing from Wednesday's 7.91 percent.

The Norwegian crown weakened through 8.30 to the euro from market closing levels around 8.26 before Gjedrem spoke, but recovered partly to 8.2805 by 1924 GMT.

Norges Bank has raised rates 16 times, a total of 4 percentage points, from a record low of 1.75 percent in mid-2005. Many economists believe that the tightening cycle has reached its end and the next move could be downward.

The country's central bank last raised rates in June and kept them unchanged at policy meetings in August and September. Its next rate-setting meeting is on October 29.

(Additional reporting by Wojciech Moskwa; Editing by James Dalgleish and Jan Paschal)

http://uk.reuters.com/article/businessNews/idUKTRE49182L20081002

Reply by Lev/Christopher on December 31, 2008 at 4:42am

The Norwegian Financial Crisis of 87 produced alot of personal economic ruin among normal people. Solely because of declining housing market coupled with rising uneployment.

In Norway it is not possible to 'Walk Away' from debt. Norwegians ending up with foreclosure have to pay back all of the original loan, with interests, regardless of how much the house sold for.

The common opinion among the Norwegians is therefore that the banks were let of easily, while private people with houses were the big loosers. The fact that the government also took away some of the tax-reduction for interest on mortgages as part of the crisis management made matters worse.

Posted by: Bram | Feb 10, 2008 9:53:15 AM

Reply by Lev/Christopher on December 31, 2008 at 4:43am

Norway and the USA Compared

Norway

GDP* - $284 billion (2007 est.)
GDP (growth rate) - 4.9% (2007 est.)
GDP per capita - $55,600 (2007 est.)
Unemployment Rate - 2.4% (2007 est.)
Budget
revenues: $232.3 billion
expenditures: $158.4 billion (2007 est.)
Public Debt - 39.1% of GDP (2007 est.)

US

GDP* - $13.75 trillion (2007 est.)
GDP (growth rate) - 2.2% (2007 est.)
GDP per capita - $46,000 (2007 est.)
Unemployment Rate - 4.6% (2007 est.)
Budget
revenues: $2.568 trillion
expenditures: $2.731 trillion (2007 est.)
Public Debt - 39.1% of GDP (2007 est.)

GDP - official exchange rate

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