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Norway Risks Housing Bubble as Krone Steals Agenda

Friday, 16 March 2012
Norway is moving closer to a housing bubble as the central bank’s strategy of cutting interest rates to weaken the krone spurs credit growth and bloats property values.

A day after Norway’s financial regulator said the biggest domestic threat to the economy comes from an overheated property market as borrowers bet rates will stay low, Norges Bank Governor Oeystein Olsen on March 14 demonstrated he won’t allow further krone gains by cutting the bank’s main interest rate a quarter of a percentage point to 1.5 percent.

The country may already be in a housing bubble, according to Robert Shiller, the co-creator of the S&P/Case-Shiller (SPCS20) home- price index who predicted the U.S. subprime mortgage crash. Policy makers should “start worrying now,” Shiller said in an interview in Copenhagen in January. Norway’s Financial Supervisory Authority this week told banks to build up their capital buffers to prepare for increased losses as low central bank rates continue to fuel credit-market imbalances.

An overpriced housing market “is one worry that we have, but we have to balance different developments,” Olsen said in a March 14 interview in Oslo. The bank “is aware when we set interest rates of the impact on housing prices,” though there’s no sign of a bubble “in the classical sense,” he said.

Norway’s interbank market is responding to the warnings. The difference between Norway’s three-month interbank offered rate and the country’s benchmark deposit rate widened to 83 basis points yesterday, compared with an average of 49 basis points over the past decade.

Continues reading from Bloomberg News





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Key Norwagian Facts
Official Name Kingdom of Denmark
King Harald V
Prime minister Jens Stoltenberg
Population 4.7 Million
Capital City Oslo
Monetary Unit Norwagian Kroner (NOK)
  1 NOK = 100 ore
Domain Name .no
Int. Dialling Code +47
Official Language Norwagian
Religion Christianity
Main stock market Name Oslo B�rs
Internet Speed 4.2 Mbps (2009)
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Statistics Norway
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