FACTBOX-Norway to choose new central bank governor

Wed Oct 20, 2010 7:29am EDT

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Oct 20 (Reuters) - Norway will soon pick the successor for central bank Governor Svein Gjedrem, who directs monetary policy, seeks sweeping changes to Norway's money market and oversees the country's $500 billion-plus wealth fund.

Gjedrem's second and final term at the helm of Norges Bank runs out at the end of 2010.

Below are key policy issues for Norges Bank and facts about the two frontrunners for the post: Oeystein Olsen, chief of Norway's statistics agency; and Knut Kjaer, former head of the country's sovereign wealth investment fund.

THE ISSUES

* Norway's main interest rate is at 2.0 percent, twice that of the euro zone. Authorities fear that if Norway hikes rates too quickly, it would push up the crown EURNOK= and slow the oil-rich state's recovery just as it gains tempo.

Under Gjedrem, Norges Bank projected raising rates by a quarter point around the turn of the year, but many analysts expect the next increase to be delayed. [ID:nLDE68T0QU]

* This month Gjedrem announced plans to modify the Norwegian money market to slash the spread between its rates and short-term interbank rates that increase lenders' financing costs and limit the redistribution of liquidity. [ID:nLDE69522P]

* Norges Bank oversees the country's sovereign wealth fund and has set up a fund management arm -- Norges Bank Investment Management (NBIM) -- to run day-to-day operations. Gjedrem has vigorously defended the oil fund against politicians' attempts to water down its return-focused mandate in favour of agenda-driven investments like green initiatives. [ID:nLDE6941X6]

Gjedrem's successor will have a tough time keeping politicians at arm's length from the fund as its value climbs to record highs that already top Norway's annual GDP.

THE CANDIDATES

Oeystein Olsen

* Age 58, Director of Statistics Norway for the past 6 years and expert in econometric modeling.

* Olsen's stats agency sees a slower economic recovery than Norges Bank under Gjedrem. As a result, Statistics Norway sees the next interest rate hike being deferred until summer 2011 -- about six months later than Norges Bank has signalled.

* "Our view and our analysis point to a lower interest rate than Norges Bank sees, based on our view that growth internationally will remain lower than consensus," Olsen, told Reuters in an interview last month. [ID:nLDE6941X6]

* Olsen was chief economist in Norway's Finance Ministry from 1999 to 2004. Gjedrem was also a senior Finance Ministry official before being selected to run the central bank in 1999.

Knut Kjaer

* Age 54, managed Norway's sovereign wealth fund from 1998 to 2007 under Gjedrem's ultimate authority.

* In that capacity The Times of London called Kjaer "the most powerful man in Norway" but the low-key Kjaer still often took public transport to work.

* Has been criticised for embracing greater risk and exposure to stocks before the 2008 financial crisis, which temporarily erased some 23 percent of the fund's value after Kjaer's departure. Kjaer has said critics failed to take into account the fund's long-term investment horizon.

* Kjaer's inclinations on interest rate policy are unknown. [ID:nLDE68Q1TA]

* Kjaer served as president of RiskMetrics, a New York-based risk management adviser, from April 2009 until July 2010, when the company was purchased for $1.55 billion.

* Currently serving five-year term on Ireland's National Pensions Reserve Fund Commission.

BACKGROUND

* The new governor will be appointed by the government, after the finance minister recommends a candidate.

* For a profile on Gjedrem, click on [ID:nLDE67I0EG]

(Editing by Toby Chopra)

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