A fall in the krone can lead to an increase in interest rates in Norway

Holvik believes productivity growth and the need for structural reforms should be the main topic at Norges Bank’s upcoming interest rate meeting on 15 August.

– When capital flees the country and productive investments in Norway are not stimulated, and when confidence in Norwegian politics is weakened, the krone becomes extra vulnerable in times of financial turmoil, as we saw in March 2020. If the stock market turmoil continues, the krone can weaken a lot, and Norway’s Banks have to act faster and we do not rule out that they will raise the interest rate, says Holvik in one press release.

The chief economist points out that low interest rates and high taxes over time lead to high debt, low savings and misinvestment, and that over time this weakens productivity growth.

– Shifting more of the economy to the public sector, or the public intervening increasingly in the private sector with regulations, taxes, subsidies and transfers between groups, contributes to weakening productivity, says Holvik.

At the end of June, central bank governor Ida Wolden Bache said that there is no chance of an interest rate cut this year, and predicted that the key interest rate would remain at 4.5 per cent for the rest of the year. At the same time, she opened up that there could be a need to increase the interest rate, for example if the krone weakens.