LO leaders have repeatedly criticized Norges Bank for an unnecessarily aggressive interest rate policy. Today central bank governor Ida Wolden Bache spoke at LO’s major cartel conference at Gol. The aim was to explain to the LO people why the interest rate has been raised 13 times in just over two years. Because the atmosphere has not been the best between LO and Norges Bank recently. As recently as in her speech to the big LO conference yesterday, LO leader Peggy Hessen Følsvik repeated the criticism of the interest rate policy. – 2023 has already become a historic year. Unfortunately I must say. We have had a historically high price increase. And a historically aggressive interest rate policy, she said. CRITICAL: LO manager Peggy Hessen Følsvik. Photo: Terje Bendiksby / NTB – Agree on a lot The central bank governor took time for an interview with news at the Pers Hotel before departing back to Oslo. – The criticism from LO has been very harsh at times. How have you experienced it? – I think it is not surprising that there are critical voices when we have raised the interest rate as quickly and as much as we have done, says Wolden Bache. – So I think there is a lot that Norges Bank and LO agree on. We agree that it is important to have a good interaction in economic policy. And we believe that the coordinated wage formation in Norway contributes to the fact that we can probably succeed in bringing down price growth without many losing their jobs, explains the governor of the central bank. NOT SURPRISING: The governor of the central bank says it is natural that there are critical voices when interest rates skyrocket. Photo: William Jobling / news – But what is it that LO has not understood? – I will not comment on LO’s statements directly. What we are concerned with now is to explain the background for what we do, and the assessments we have made, says Wolden Bache. – And then I would like to emphasize that there are demanding trade-offs in monetary policy. There is uncertainty about the economic outlook. – What was most important for you to achieve today? – The most important thing to get across is that we have received a clear mandate from the government, and that is to ensure low and stable inflation. – Demanding planning Today, the Governor of the Central Bank took the LO people to school about how monetary policy is created. – Monetary policy must ensure low and stable inflation. The goal is a price increase that is close to 2 percent over time. At the same time, we must help ensure that as many people as possible have a job to go to, she said in her speech. – That high and stable employment is a good thing hardly needs any further justification – especially not in an assembly like this. She reminded that there are perhaps fewer people who have thought about the benefits of low and stable inflation. – When prices rise quickly and unexpectedly, it becomes more difficult to plan – for business and for the individual. High price growth makes it difficult to know whether the price of a product or service is reasonable. Salary supplements that look generous when they are agreed can turn out to be eaten up by high price increases after a few months. EXPLAINED: The governor of the central bank gave the LO leaders a briefing on how monetary policy is created. Photo: William Jobling / news – We are not trying to bring inflation down as quickly as possible. That could lead to a strong rise in unemployment, and we want to avoid that, Wolden Bache asserted. In response to questions from the audience at the back of the speech, she dealt more directly with the criticism that Norges Bank wants a higher unemployment rate. – When we raise the interest rate, it is to reduce price inflation. The goal is not to increase unemployment. The aim is to bring price growth down to as low a cost as possible in the form of increased unemployment, she said. – Has created debate Wolden Bache emphasized that the central bank expects somewhat increased unemployment. – We know that raising the interest rate has a cost. When we have nevertheless raised the interest rate, it is because the cost of not doing so would have been greater. The governor of the central bank emphasized that the average mortgage interest rate has more than doubled since the bank started raising the key interest rate. – For those who have loans, increased interest costs come on top of the fact that prices have increased a lot for food, energy and many other goods and services, said Wolden Bache. TALTE: – When we raise the interest rate, it is to reduce price inflation, says the governor of the central bank. Photo: William Jobling / news – Many people are worried about their own finances. For some, it is difficult to make ends meet. We know that raising the interest rate has a cost. At the same time, she defended the interest rate increases. – When we have nevertheless raised the interest rate, it is because the cost of not doing so would have been greater. The rapid interest rate increases have led to debate. I am happy for this opportunity to elaborate on why we at Norges Bank believe it has been right to raise the interest rate as much as we have done in recent years. Weak krone Recently, the weak krone has also created new challenges for Norges Bank and the government. – Despite the fact that we have raised the interest rate a lot in response to the high price increase, the krone exchange rate has weakened a good deal over the past year. Part of the explanation is probably that interest rates have risen more in several of the countries we trade with. Wolden Bache pointed out that the pandemic, war and high inflation have led to increased political and economic uncertainty internationally. – The fact that there are several factors that affect the krone exchange rate does not mean that the interest rate setting here at home is not important. Had we not raised the interest rate in response to the increased price increase, the krone would probably have been significantly weaker, she said. – In the current situation, a weaker krone makes the trade-offs in monetary policy more demanding. Inflation is already high, and the weakening of the krone is helping to keep inflation up. At the same time, the economy is cooling down. Mandate Følsvik yesterday also called for a changed mandate for Norges Bank, which was rejected by Prime Minister Jonas Gahr Støre (Ap). Norges Bank has raised the interest rate to cool down the economy. The aim is that prices in society should not rise by more than 2 per cent a year over time. LO has argued that much of the price increase in Norway comes from imported goods and services, and that higher interest rates here at home do not help as economists think. For years, LO has warned that more expensive interest rates can create trouble for companies, which will in turn lead to increased unemployment. And in June, when the governor of the central bank came up with a double interest rate hike, the tone was very harsh from the LO leader. – It is incomprehensible that the governor of the central bank continues his aggressive interest rate race. This is going to make it worse for businesses and people, Følsvik said at the time. – We cannot accept that Norges Bank is once again using increased unemployment as a means of economic policy.
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The governor of the central bank meets the LO leaders – responds to the criticism – news Norway – Overview of news from different parts of the country
