Norway May Delay Rate Rises as Oil Investment Wanes
Norges Bank will probably keep the benchmark interest rate unchanged today, after becoming the first central bank in Europe to lift borrowing costs, as lower oil spending next year slows the pace of economic growth.
The Oslo-based bank will leave the overnight deposit rate at 1.5 percent, according to 11 of the 13 economists surveyed by Bloomberg. Two economists forecast an increase to 1.75 percent. The bank will announce its decision at 2 p.m. local time.
Petroleum investment in the world’s sixth-biggest oil exporter will decline 1.4 percent next year, Statistics Norway estimates, as oil producers including Statoil ASA adjust to a 53 percent slump in the price of crude since it peaked at $147 a barrel in July 2008. The central bank, which based its October rate outlook on “high” petroleum investment next year, says the industry needs oil to cost no less than $70 a barrel to turn a profit. Oil has averaged $72 a barrel since June 30.
“Weak oil investment figures may postpone a rise” in the interest rate, Kyrre Aamdal, an economist at DnB NOR ASA, said in a note to clients on Dec. 14. Lower oil investment spells a “weaker demand impetus for the mainland economy.” DnB NOR expects the bank to keep the benchmark unchanged this month.
The central bank, which is trying to address the needs of exporters while keeping an eye on rising asset prices, on Oct. 28 raised the main interest rate a quarter point, joining Israel and Australia to lead a reversal of policy easing. Norges Bank said then the rate will average 2.25 percent next year, 3.5 percent in 2011 and 4.25 percent in 2012.
Not Supported
In neighboring Sweden, the Riksbank today said it will keep the benchmark rate at a record-low 0.25 percent until autumn next year as recovery progresses from a “low level and there will be ample spare capacity over the coming years.” The stance reflects caution in central banks across the globe, with the U.S. Federal Reserve favoring keeping its benchmark rate close to zero for an “extended period.”
Petroleum investments in Norway will increase 7.5 percent this year, in volume terms, and remain unchanged in 2010, the bank estimated in October. Investment in the oil industry will rise 2.5 percent in 2011 and 2012, it said.
The projections aren’t supported by industry representatives. Suppliers to the oil industry expect orders to decline in the first half of next year, according to Norges Bank’s regional network report published last week.
The central bank may also be less inclined to push ahead with planned rate increases as exporters suffer the fallout of a stronger krone, Norges Bank Deputy Governor Jan F. Qvigstad said in a Nov. 4 speech.
Dimmed Outlook
It is “most probable” that Norges Bank won’t raise the benchmark rate higher than 1.75 percent by the end of March, Qvigstad said in a Nov guaranteed payday loans. 4 interview. The krone has gained 7.1 percent against the euro since the end of June, making it the second-best performer of the 16 major currencies tracked by Bloomberg.
The krone strengthened 0.4 percent against the euro to trade at 8.4277 by 10:16 a.m. in Oslo. Against the dollar the currency stood at 5.7920 compared with 5.8226 yesterday.
While Norway’s oil wealth, low borrowing costs and a record stimulus package equivalent to 4.7 percent of gross domestic product helped the economy return to growth in the second quarter, the outlook for continued recovery has dimmed somewhat since the bank’s last monetary report.
Manufacturing contracted for a fourth month in November, Fokus Bank said on Dec. 2, while industrial production slumped an annual 4.9 percent in October, after slipping 1.2 percent the previous month, the statistics office said on Dec. 7. Oil and gas extraction showed the biggest decline, falling 6.3 percent from a year earlier, the office said.
Gjedrem ‘Worried’
At the same time, the domestic economy is heating up and Governor Svein Gjedrem in a Dec. 1 interview said he is “worried” that consumers aren’t “sufficiently taking into account that over the medium term, interest rates most likely will be much higher than today.”
Registered unemployment held at 2.6 percent in November, the lowest in Europe, helping underpin three successive quarters of house price gains. House prices rose 1.8 percent last quarter, after rising 5.3 percent and 4.15 percent in the preceding two periods, the statistics office estimates.
“Norges Bank is biased towards pre-emptive tightening to moderate what might turn out to be a housing market bubble,” Bjoern-Roger Willhelmsen, senior economist at First Securities in Oslo said to a note to clients on Dec. 11. Willhelmsen forecasts a quarter point increase in the benchmark rate today.
Mixed News
About 90 percent of Norwegian mortgage holders have adjustable rate loans, meaning changes in interest rates are quick to feed through to disposable incomes.
Norges Bank also needs to offset budget spending, with the government estimating it will exceed expenditure guidelines for a second consecutive year in 2010.
Government stimulus and high job security coupled with low borrowing costs helped push retail sales 2.1 percent higher in October from the previous month. Inflation has remained below the central bank’s target of 2.5 percent over the past four months.
“The mixed news since October makes it unusually difficult to predict the outcome of the interest rate decision,” Wilhelmsen said. “The bank may be biased toward not surprising the market to avoid an appreciation of the krone.”
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