The Norwegian central bank is risking an asset bubble by keeping interest rates close to the US benchmark in order to contain krone gains and protect exporters.
So says Nouriel Roubini, NYU professor, and, more important these days, one of the few who correctly predicted the financial crisis. “Even in Norway there is no willingness to raise rates – despite inflation and robust growth – because of concerns about the currency. That means you are feeding real estate and other bubbles,” Mr Roubini told Bloomberg in Oslo today.
Norwegian house prices are forecast to rise 7 per cent this year, and they rose at an annualised rate of 11.6 per cent in Q4. Norges Bank governor Svein Gjedrem said in December he was “worried” about imbalances in Norway’s housing market. (By contrast, Israel’s central bank governor today denied a property bubble at all.)
Mr Roubini believes monetary policy in Norway – and Australia and Israel – should be “tightened sooner”, because of the risk of inflation. Presumably he considers this risk greater than the risk of falling exports to these fragile economies. The Australian dollar is up 10.5 per cent against the euro since the end of June, while Norway’s krone has gained 10 per cent and the shekel is up 6.2 per cent.
