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By Francesco Canepa and Anirban Nag
LONDON, April 27 (Reuters) - Norway may need to raise countercyclical buffers for its banks starting in the summer of 2016 to fight rapid growth in house prices, central bank governor Oeystein Olsen said on Monday, as he argued that monetary policy should not be expected to ensure financial stability.
The central bank should consider stability issues when setting interest rates, but the regulator should be the first line of defence, freeing the bank’s hand as it weighs a rate cut even as house price continue to soar, Olsen said.
“Monetary policy could ... contribute to more stable economic developments over time,” Olsen said in a speech in London. “At the same time, monetary policy must not be overburdened.
“If house prices continued to rise rapidly and credit growth increased, it would be appropriate to advise the ministry (of finance) to raise the level of the countercyclical capital buffer effective from summer 2016,” Olsen said.
Speaking to reporters later, Olsen said he shares concerns expressed by Norway’s financial regulator about the sustainability of household debt and housing prices in the country.
“We also express the same concerns,” Olsen said. “They have the different tasks, namely the micro-supervision of banks. Their way of expression is different.”
Norway’s Financial Supervisory Authority said last week the country’s rising household debt may eventually lead to an economic setback and financial instability, adding that banks should retain the bulk of their profits to boost their balance sheets.
Olsen had earlier said the bank had kept interest rates higher than it would have otherwise because of rapidly rising house prices.
However, the bank said in March it was likely to cut rates either in May or June to buffer the economy as its oil sector, which accounts for a fifth of the economy, will contract after crude prices crashed.
Energy firms are laying off workers, cutting investments by 15 percent this year and delaying or cancelling some of their biggest projects to save cash.
Olsen said on Monday a recent rise in the crown and a rebound in oil prices would be taken into consideration when the Norges Bank decides on interest rates next month.
Low rates, however, encourage families to take on more debt, and Norway’s household debt is among the highest in Europe, at around 200 percent of disposable income.
The financial regulator has already asked the ministry to implement tougher mortgage rules, but the countercyclical buffer, aimed at forcing banks to build capital during the good times, remained unchanged this year. (Reporting by Francesco Canepa and Anirban Nag, Writing by Balazs Koranyi, Editing by Angus MacSwan, Larry King)