Bloomberg News

Norges Bank Is Monitoring Krone, Ready to Act, Olsen Says

February 24, 2012

(Updates with krone in fifth paragraph, Olsen comments in fourth, sixth, strategist comment in seventh.)

Feb. 17 (Bloomberg) -- Norway’s central bank is monitoring the krone after its recent gains as policy makers focus on boosting competitiveness in the oil-exporting nation, Governor Oeystein Olsen said.

“We follow closely the krone developments,” he said yesterday in an interview in Oslo. “We have observed, of course, the recent development of the krone, we’re close to the level” in September, when it touched an eight-year high, he said.

The central bank, which in December lowered its main rate by half a percentage point to 1.75 percent, will respond to krone swings to the extent that they affect inflation, Olsen said. The currency this week touched the highest level since Sept. 8, when the Swiss National Bank’s decision to peg the franc to the euro prompted investors to seek alternative havens. This week’s krone ascent doesn’t warrant the same concern as that event, Olsen said.

“In September, it was linked to a decision by the Swiss National Bank, we have nothing similar,” Olsen said. “So I don’t think the need necessarily is the same for us to react in the same way as we did then.” An annual address didn’t include a response to the krone’s recent gains because the prepared comments had a “longer perspective,” he said.

The krone, which is this month’s best performing major currency against both the dollar and the euro, gained 0.3 percent to 7.5007 per euro and 5.7116 per dollar as of 10:04 a.m. in Oslo.

‘No Level’

“There is no specific level at which we react,” Olsen said. “And that was the case in September also. It was not a certain level as such. It was the circumstances around it.”

Olsen’s comments yesterday suggest that the central bank, “somewhat surprisingly seems to have lowered the guard against the krone as the economic outlook abroad has improved,” said Erica Blomgren, chief strategist at SEB Merchant Banking in Oslo, in a note. “It is probably a bit too early to call off any possible negative krone comments if the krone appreciates some 1 percent to 2 percent further.”

Blomgren said the bank is unlikely to defend a level of 7.5 against the euro, judging by Olsen’s comments.

The week’s gains in the krone had prompted speculation that Olsen may use his annual address to talk down the currency. Trade Minister Trond Giske on Feb. 13 warned that the krone remains a “challenge” for the economy.

Underline 100%

The central bank in September signaled it was ready to take steps to curb the krone’s appreciation and that the benchmark policy rate was the best instrument through which to do so. Those comments helped weaken the currency, triggering a 4.8 percent decline from a Sept. 8 peak through a trough two weeks later.

Olsen’s September statement remains “valid,” he said yesterday. “I can 100 percent underline the same paragraph as I did in September. We have room to maneuver; our interest rate is not zero.”

The world’s seventh-largest oil exporter, which boasts the biggest budget surplus of any AAA rated nation, has emerged as a haven from the euro debt crisis. The Norwegian currency has strengthened even after policy makers cut borrowing costs. The Nordic nation has no net debt thanks to a $596 billion sovereign-wealth fund, helping support the world’s lowest risk of default, as measured by credit default swaps.


Still weaker demand from debt-ridden Europe and krone gains are prompting some exporters to announce job cuts, including Norske Skogindustrier ASA, the world’s second-largest maker of newsprint, and Renewable Energy Corp. ASA, a Norwegian maker of solar energy components.

Olsen’s comments on the krone signal he wants industry to boost competitiveness without relying on the exchange rate for help, Blomgren said.

One in four exporters is planning to cut staff this quarter, according to the Confederation of Norwegian Enterprise. “We have two worrying scenarios for our export industry. One is the currency,” the other is wage growth, John G. Bernander, NHO’s chief executive officer said in an interview this week.

The government needs to “make sure we don’t overstretch the budget by having too much focus on public spending,” he said.

Oil Spending

Olsen in his speech urged the government to spend less of the country’s oil money and avoid an over-reliance on its commodities wealth or risk killing manufacturing jobs.

“Entire industries could be lost. If spending proves to be excessive, such structural changes may be difficult, or impossible, to reverse,” he said.

Norway’s mainland economy, which excludes income from oil and shipping, will grow 2.2 percent this year, the International Monetary Fund said Feb. 2. By comparison, the 17-member euro area will expand just 0.5 percent in 2012, the European Commission said on Nov. 10.

Policy makers will next meet on March 14 to decide on interest rates.

-- With assistance from Stephen Treloar in Oslo. Editors: Jonas Bergman, Tasneem Brogger.

To contact the reporter on this story: Josiane Kremer in Oslo at

To contact the editor responsible for this story: Tasneem Brogger at

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