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Annual speech by Norway's central bank governor
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Says economy operating above potential
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Core inflation stands at 6.4%, far above 2% target
By Terje Solsvik OSLO, Feb 16 (Reuters) - Norway's central bank governor on Thursday said the economy was "operating above potential" and that there should be no doubt that Norges Bank will bring down soaring consumer price inflation, which is running at its highest level in decades. In her first annual policy address since taking office last year, Ida Wolden Bache said Norges Bank's rate hikes were aimed at "softening demand" in the domestic economy and could also lead to a stronger Norwegian currency. "There should never be any doubt that Norges Bank will do the job we have been given - to ensure low and stable inflation," Bache told an audience of business leaders and top government officials. Global inflation has soared in the wake of the pandemic and Russia's invasion of Ukraine, leading central banks to reverse years of ultra-easy monetary policies. Norwegian core consumer prices, a category that excludes volatile energy prices and taxes, rose 6.4% year-on-year in January, exceeding the central bank's 5.9% expectation and more than three times the central bank's 2.0% target. Norges Bank has raised its key policy rate eight times since late 2021, hiking it to 2.75% from zero, and has said it is likely to increase it to 3% in March, but it has not said whether it intends to raise rates any further than that. Some economists now predict the policy rate will rise to 3.5% or more later this year. In her speech, the governor stopped short of providing specific guidance for how rates would develop but warned against the effects of a weaker currency, which she said could push up inflation. "If the foreign exchange market is not confident that monetary policy will be tightened when inflation rises, the krone (currency) may depreciate," Bache said. She also reiterated a long-held line that inflation could have fallen more rapidly if rates had risen faster than they have so far. "The reason we are taking a while to bring down inflation is that our job is also to contribute to keeping as many people in employment as possible. We do not want to restrain the economy more than required to tame inflation," she said. (Editing by Gwladys Fouche and Hugh Lawson)
