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Norway Risks Housing Bubble as Krone Steals AgendaFriday, 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.
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