The krona has fallen like a stone recently and is at its lowest level measured against the dollar and euro for several decades. Today, central bank governor Ida Wolden-Bache is presenting an open hearing in the Storting on the financial market report. Several of the finance committee’s members confirm ahead of the hearing that the weak krona is going to be a very central topic. – I am worried about the weak krona, because it reinforces the price crisis that many people in Norway are experiencing, says Rødt’s Marie Sneve Martinussen to news. – That is why I will be interested in hearing the central bank governor’s thoughts about her opportunities to do something about it, and whether we politicians should give her more tools in dealing with it, she explains. Just under an hour has been set aside for a joint round of questions with the governor of the central bank. – It will be very exciting to get some views on both interest rates, the krone exchange rate and activity in the Norwegian economy, how these work together, and what is their explanation today for the relatively low krone exchange rate, says Center Party’s Geir Pollestad. HEARING: SV’s Kari Elisabeth Kaski, Aps Eigil Knutsen and Sps Geir Pollestad meet the governor of the central bank in today’s hearing. Photo: Stian Lysberg Solum / NTB SV’s fiscal spokesperson Kari Elisabeth Kaski will also ask questions about the weak krona, in addition to other things. – It is interesting to hear assessments related to the bank’s sale of krone, even though there are many factors that affect the krone exchange rate, she says. – The second is the extent to which the price drop is normalization, given that the Norwegian economy is less affected by oil investments, she says. news has been in contact with Norges Bank, which declines to comment on the matter and refers to the hearing. – Political risk The Progress Party’s Hans Andreas Limi also confirms that the krone exchange rate and the impact of fiscal policy will be the main topic of the hearing. Limi believes the government must share its responsibility for the devaluation of the krone. – The government’s economic policy, with huge tax increases overnight and with retroactive effect, has weakened confidence in the Norwegian economy, increased the political risk of investing in Norway and thereby also weakened the krone exchange rate, he says. RISK: FRP’s fiscal policy spokesperson Hans Andreas Limi. Photo: Fredrik Varfjell / NTB – Norwegian business owners are moving out of the country, and foreign investments in Norway are greatly reduced. This is the responsibility of the finance minister and the government, says the FRP deputy leader. He points out that a weak krone leads to increased price growth in Norway due to high imports. – Norges Bank has so far not given a good explanation for the weakened krone, but is using its only tool, which is increased interest rates, to moderate the price rise, says Limi. He believes that it is probably as much the finance minister as the governor of the central bank who must be challenged about the weak krona. Unreasonable criticism, believes Pollestad from Sp. He points out that the krone has fallen sharply ever since the drop in oil prices in 2014. – Now we see a situation where there is uncertainty in the economy. Then the money often goes to the big economies. Interest rates are high in both the EU and the US. That makes it less attractive to move towards Norway, he says, and continues: – We have high activity in the Norwegian economy. If everything was bad in Norway and the business world was going badly, I could understand the criticism from the FRP. But the case is that things are going well in Norwegian business, people have jobs, and therefore they completely miss the criticism. The right-winger’s Mahmoud Farahmand would like to hear the central bank governor’s statement before asking questions, but is looking forward to hearing Wolden Bache’s “views on the conditions that affect inflation.” Four reasons why the krone has become weaker Senior economist Dane Cekov at Nordea points to four reasons why the krone is considerably weaker today than in 2010. The interest rate differential with foreign countries is decreasing: Norway no longer has higher interest rates than the eurozone and the USA. Japan and Switzerland are also in the same situation as Norway, but have larger currencies, are considered safe havens and are thus less exposed to fluctuations. Thus, the Norwegian krone is chosen away. Investors take less currency risk: Financial institutions such as banks and funds were subject to regulations after the financial crisis that make it more difficult to invest in risky assets. It can typically be smaller currencies, such as Norwegian kroner. Certain hedge funds have completely stopped owning kroner, according to Cekov. Krone sales when the stock market falls: The krone is weakened when the financial markets fall. Norwegian life and pension funds such as index funds must reflect the value of the stock exchanges they are measured against abroad. These investments must be currency hedged. This means that krone must be bought if the indices rise, while krone must be sold if the stock market falls. Norges Bank sells krone: The krone exchange rate fluctuates with the price of oil and gas, which is Norway’s most important commodity sold abroad. But even though Norway has an enormous trade surplus with other countries, the basic balance does not show a surplus because the central bank sells so many kroner that the effect is almost neutralized. Norges Bank sells NOK 1.7 billion every day. Right tools? Rødt deputy leader Sneve Martinussen will ask the governor of the central bank whether she thinks Norges Bank has the tools it needs in the face of a falling krone exchange rate. – Although the central bank is completely free in its decisions about interest rates and krone sales, it is the politicians who give the central bank a mandate and also the tools, she says. EXCITED: Red deputy leader Marie Sneve Martinussen. Photo: Carina Johansen / NTB – I am interested in hearing what she thinks about the restrictions that the Storting has actually placed on Norges Bank. For example, that they do not have the opportunity to issue bonds as is done in other countries without large assets. – It gives them less room to adjust their krone sales at a time when the exchange rate is falling, Rødt-toppen points out. – How can ordinary people notice that the krona is so weak, except when going on holiday to a euro country? – Even those who cannot afford to go on holiday notice that the krona is weak, because it affects the price of everything we buy from abroad – such as many foodstuffs and consumer goods. – Has become a problem The Labor Party’s financial top in the Storting, Eigil Knutsen, recently acknowledged in an interview with news that the weak krona has become a problem for a government that is struggling to help people cope with more expensive food, petrol and electricity and galloping interest rates. – Yes, that’s it. Because we import more inflation, Knutsen told news before the weekend. – We bring even more with us into Norway from abroad. So I would definitely say that is a problem. And then there are external factors that influence a lot of this here. FINANCE TOP: The Labor Party’s Eigil Knutsen heads the finance committee at the Storting. Photo: Terje Pedersen / NTB He emphasizes that the weak krona is a problem for ordinary people. – A good part of the price increase that is coming into the economy now has been imported from abroad through energy, foodstuffs and input factors in industry, says Knutsen. – When we are in a situation with high price growth, we import even more price growth than if the krone had not weakened so much. This makes it less predictable for companies and individuals when making investment decisions. Pollestad believes the weak krona has made the government’s job of combating high price growth more difficult, even though it helps the export industry. – The disadvantage is that the prices of imported goods have risen, says Pollestad, and continues: – The simple solution is to raise interest rates sharply, but that will affect jobs and employment in Norway. If you do one thing to solve a problem, it might create at least two new ones. And that is very unfortunate, and it means that we have to find the least bad solution. An earlier version of the case had the title: “The governor of the central bank on the carpet in the Storting – must answer about the weak krone”. This is somewhat imprecise as this is an annual hearing. The title has therefore been updated.
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The governor of the central bank in a hearing in the Storting – must answer about the weak krone – news Norway – Overview of news from different parts of the country
