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Olsen Says Krone Is an Important Variable for Setting Rates

Norges Bank Governor Oeystein Olsen said foreign exchange rates are an important input when setting interest rates as they influence the pace of inflation and employment in the Nordic economy.

The krone is an “important variable” and currently “strong,” he said in a speech today in Moss, Norway. The bank will not “intervene systematically” in currency markets as its main tool is the interest rate, he also said.

The krone, this month’s best performing major currency against both the dollar and the euro, fell 0.1 percent to 7.5048 per euro and lost 0.8 percent to 5.6207 per dollar as of 3:44 p.m. in Oslo. The currency this month touched its highest level since 2003 against Europe’s common currency, as investors flocked to Norway’s higher-yielding, AAA rated assets.

The central bank in December lowered its main rate by half a percentage point to 1.75 percent, its biggest cut since May 2009, to avoid excessive krone gains and guard against the fallout of Europe’s debt crisis. Olsen warned in September the bank had measures to keep the krone in check after a surge risked pushing down inflation and hurting exporters.

“We don’t have specific levels that we are particularly worried about,” Olsen said today. “But we are following the development of the krone exchange rate closely no matter in which direction it goes, because it affects the outlook for inflation and employment.”

No Immediate Concern

Norway, which boasts the biggest budget surplus of any AAA rated nation, emerged last year as a haven from Europe’s debt crisis. The country’s statistics office estimates Norway’s economy, excluding income from oil and shipping, will grow 2.7 percent this year, versus a European Commission estimate for 0.3 percent contraction in the euro area.

Economic Growth, coupled with historically low rates and registered unemployment below 3 percent is fueling debt growth.

Olsen said today that consumer debt, while currently at a record level, posed no immediate concern.

“If this goes too far, and a bubble bursts and Norwegian households must cut back this can pull the Norwegian economy into a downturn,” he said. “The concern is a little bit longer term because for now there isn’t a large danger for a downturn in the Norwegian economy through that channel.”

Norway’s house prices rose an annual 8.4 percent in January, according to the Real Estate Brokers Association, while consumer credit growth hovers at more than 7 percent.

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