Norway manages the krone masterfully

04 February 2015 - 02:06 By Bloomberg
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"Øystein Olsen, Norges Bank
"Øystein Olsen, Norges Bank
Image: Wikimedia Commons

Norway's central bank governor, Oeystein Olsen, has what the rest of Europe is looking for: inflation.

His success in delivering price growth comes after he scrapped the rule book in 2012 and targeted the krone. The currency had became a concern, hitting a nine-year high against the euro.

After shocking markets with a cut in March 2012, Olsen kept rates unchanged for 1000 days while signalling that he may ease again to keep currency traders at bay instead of being bullied by what some called a housing bubble. As plunging oil prices now add to deflation woes in Europe, Olsen can boast 2.4% inflation.

The bank's "dirty float is quite obvious", said Anna Raman, a senior economist at Nykredit Markets. Lowering rates as the economy was strong, unemployment low and housing "red-hot" revealed Olsen's hand, she said, adding the bank has "over the years targeted inflation, wages or currency to its liking".

Olsen, who declined to comment, said as much in 2013. The krone has been important in determining rate moves, he said, calling it the "main argument" for easing in 2012 and "one of several factors" for rate cut signals in June 2013.

By never officially targeting the currency, or keeping a "dirty float" as Raman calls it, he has avoided troubles that have befallen other central banks, such as Switzerland's, whose abandonment of its franc cap last month roiled markets.

Olsen and his colleagues insist they have no target for the krone, but the currency has weakened 34% against the dollar and 12% against the euro on his watch.

The governor has had a lot of help from the booming petroleum industry, keeping Norway at full employment, according to Knut Anton Mork, chief economist at Svenska Handelsbanken AB in Oslo.

"He's been lucky," said Mork, who in the late 1980s co-authored a paper with Olsen on the effect of oil prices.

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