Friday, January 28

The Governor of the Central Bank on the pandemic and interest rate hike: – I never regret it

Outgoing central bank governor Øystein Olsen (69) is tired of the pandemic, but is optimistic about the new year – only we get through the winter first.


E24 meets a cautiously optimistic central bank governor for a Christmas chat in an older but stately part of Norges Bank.

Just before Christmas, Øystein Olsen probably raised interest rates for the last time, before leaving the CEO’s chair in February. It happened while infection flare-ups, new crisis measures, electricity price records and extreme uncertainty dominated the news picture – and some described a rise in interest rates as unmusical.

The central bank governor has had to reassess the situation completely after the new contagion flare-up, but still raised interest rates.

– How difficult was that decision?

– We had actually set a deadline the Friday before, but after the government introduced new restrictions related to omikron, it entailed an extra round of hard work, Olsen answers.

– We threw ourselves around, reconsidered, and ended up with the fact that we now assume that there will be a significant downturn again in the Norwegian economy. However, given fiscal policy support and the phasing out of infection control measures during the winter, we believe that the strong recovery that we have seen until fairly recently will continue.

It’s going to be a bump

Olsen thinks it will be a “hump” now in the first quarter, but that the growth will then return. Unemployment is likely to rise slightly, which is serious enough for those affected, but not close to what we saw in the spring of 2020.

At the same time, Norges Bank trusts that private consumption will drive growth forward, following “forced” savings during the pandemic.

– Are you afraid of making a mistake when setting the interest rate?

– It is not a quick decision, but thorough considerations, and we are of course discussing alternatives. When I have those assessments behind me, and we have made a decision, then I am confident of it.

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Olsen also emphasizes that if circumstances change, there are always new chances to adjust.

– So in that sense, I never regret a decision. We always do what we think is right, given the information we have at the time.

He also does not lose sleep at night because of his job.

– But at the same time I acknowledge the responsibility. When I go home, the job is not out of my head for that reason, especially during periods when it is difficult and demanding.

Olsen has dealt with several crises during his 11 years as central bank governor, but the pandemic overshadows everything.

Adrenaline and crisis management

During his 11 years in the chair, Olsen has tackled several minor crises, including falling oil prices and debt problems in the eurozone. Then he got the pandemic in his lap.

– It was intense work, some also worked at night, but I mostly let it go. So it was very hectic and kind of tiring, but when you stand in it, you do not think about it, you mobilize energy and adrenaline and get strength from it.

Both extraordinary interest rate cuts and other measures for the banking sector and the foreign exchange market came on an ongoing basis.

– It is also a good experience to have been through, even if of course you do not want crises. There is something nice about being in such a type of crisis with people who are moving in the same direction as a team, he says.

Olsen says that former deputy central bank governor Jon Nicolaisen often joked that he had not been involved in any real crisis, such as the financial crisis, “when things really happened”.

– But now he can not say it anymore. I remind him of that now and take it back a bit, he says with a smile.

Christmas is once again special – also for the central bank governor, who, like most people, is now thoroughly tired of the whole pandemic.

Was never in doubt about zero interest rates

Olsen, who constantly argued for higher interest rates, became the first in Norway to cut interest rates to zero in May 2020.

– Zero is very low, but it was also the setback of all time, so we were never in doubt. Although we were clear that fiscal policy had to do its part, we also had to contribute.

The zero interest rate was actually an assessment of the lower limit, according to Olsen. At that time, both the European Central Bank and the Swedish Riksbank had already tried negative interest rates.

– We, and I, have long expressed skepticism about too low and negative interest rates, and we avoided it this time as well. If there is a need to stimulate even more, then we have fiscal policy, he says.

Norges Bank was also very concerned that a credit crunch would arise, with a negative spiral in which the banks restricted lending.

– So we did what we could to prevent it. It was extreme. Had we had a financial crisis on top of that situation, it would have gone really bad.

– Only we get through the winter

– How do you see the coming year, are you optimistic?

– Yes, only we will get through this winter, then the sun will return, the measures will probably be scaled down and the price of electricity will probably come down to a slightly more comfortable level. Then we assume that growth picks up significantly again.

– The fact that the interest rate is going up to a more normal level is also an expression that things are going so well in the economy, he adds.

– What do you say about the rumor that you have been eager to raise interest rates all these years?

– I do not want to say that it is completely wrong. It is the case that both I and the bank have in various ways communicated some challenges if interest rates persist at a low level.

The central bank governor thinks it is time for a “hump” in the economy, before times become brighter.

Here he aims in particular at increased house prices combined with the household debt level, which is at the top of the world.

– I think that other countries may have been too one-sidedly concerned that inflation has been lower than the target, and kept interest rates very low, he says, referring to both Sweden and the eurozone.

It can quickly have consequences for debt accumulation and become a major problem for monetary policy, Olsen fears.

– As long as the interest burden is low, that debt is tolerable. The question is what happens when interest rates rise and inflation rises.

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Inflation is already higher than in many years due to energy and commodity prices, as well as bottlenecks in production and transport. However, both the major central banks and Norges Bank believe that there is a temporary problem associated with the recovery.

– At the same time, one has become a little more in doubt now, because there has been greater breadth in prices that have only gone up and up, and that it has now been a good while, he says.

– We say it is upside on the interest rate path here, in relation to the fact that the price impulses into the Norwegian economy can also be stronger than we now assume.

In other words, interest rates may have to rise more if inflation rises more than expected.

Olsen is taking a Christmas holiday with an optimistic view of 2022, when the sun returns, electricity prices fall and restrictions are removed.

– Scary to take water over your head

– What is your best financial advice to most people in the time to come?

– It is important to take as a starting point the financial framework you have and not live beyond your means.

He worries that some may struggle to enter the housing market, and that it may become a form of exclusion.

– No matter when you enter the housing market, it is scary to take water over your head with regard to borrowing. Then it is important to listen to the bank’s signals that such a low interest rate we have now, it will not last.

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Olsen raises the estimate of house prices in 2022

Controversial duel

There has been a storm surrounding the hiring of Olsen’s successor, after the favorite and current deputy central bank governor Ida Wolden Bache received competition from NATO chief Jens Stoltenberg.

– There is considerable breadth in the position when you both have to be central bank governor and at the same time be chairman of the board of the Petroleum Fund. Beyond that, I will not emphasize special requirements with regard to the list of applicants that is now available, Olsen says.

The Ministry of Finance is responsible for the appointment.

Olsen’s last major performance is scheduled for the annual speech in February. Then retirement awaits.

– Of course I will not be a seventh father in the house, but I will follow very well and get involved at a good distance, he says.

He also wants to enjoy more free time, with time for grandchildren and traveling with his wife.

– At the same time, as long as I have life and health intact, I am very open for someone to use me for something that is a little different based on the experience I have, a little like that part time.

Øystein Olsen looks forward to a less busy everyday life when he retires, but does not rule out new assignments. On the other hand, he does not intend to become a seventh father in the house at Norges Bank.

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