WHY NORWAY REINED IN THE BANKS
"What happened in January was a step back, I admit,' said Leif Eide, who runs market operations at the Bank of Norway. "But even so we're still controlling the banking system through market forces. If we'd returned to direct regulation that would have been two or three steps back.'
Since January 10, when the central bank sharply increased reserve requirements only a few months after it had freed interest rates for the first time, Norwegian bankers have been asking themselves whether the deregulation of the last three years has gone into reverse.
The authorities' purpose in raising reserve requirements was to push up interest rates --which had increased by only 1/2% in 1985 --in order to counteract a severe overheating of the economy. This was reflected not in high inflation--prices rose by 5.6% last year--but in a 50% increase in bank credit.
The credit was going almost entirely into consumption; investment by the private sector in non-oil related activities has been sluggish in recent years. In 1985 private consumption in Norway increased by 7 1/2%, and car sales, which are financed over 90% by credit, rose by more than half.