Norway Keeps Key Rate Unchanged as Currency Gains Hurt Exporters

Norges Bank kept benchmark interest rates unchanged for a sixth meeting as concern over driving the krone to records prevents policy makers from cooling a potential housing bubble in Europe’s second-richest nation.

The overnight deposit rate was kept at 1.5 percent, the Oslo-based bank said today in a statement. The decision was forecast by all 16 economists surveyed by Bloomberg. The bank also signaled it will keep its benchmark unchanged longer than previously predicted.

“The analyses suggest that the key policy rate be kept low longer than previously anticipated,” Governor Oeystein Olsen said in a statement. “The first increase in the key policy rate is now projected to take place in spring 2014.”

Policy makers, who have seen the country’s currency surge about 22 percent versus the euro since early 2009, are caught between protecting exporters and the need to cool a run-away property market and prevent a repeat of Norway’s 1990s crisis, which sent real estate prices plunging 40 percent. The bank has kept rates near a record for 12 months after cutting it twice in 2011 and 2012 after the krone emerged as a haven from Europe’s debt crisis. Low rates spurred household borrowing and sent private debt levels to a record.

House prices in western Europe’s largest oil exporter have doubled since 2002, and rose an annual 8.5 percent last month. Private debt burdens will swell to more than 200 percent of disposable incomes this year, the central bank estimates.

Weak global growth prospects have prompted central bankers in the euro zone, the U.S. and Japan to resort to additional stimulus measures, curbing Norges Bank’s scope to damp the country’s overheated housing market without fueling krone gains.

The currency rose to a record on a trade weighted basis on Feb. 13, closing at 84.30. Governor Olsen said two days later that the bank was prepared to cut rates to counter further krone strength.

Norway’s approach to currency strength contrasts with Sweden, where Governor Stefan Ingves said last month that he was “happy” with the krona exchange rate, which has risen 5.5. percent this year and is the best performer in the Bloomberg Correlation-Weighted Index.

To cool Norway’s overheated housing market, the government wants banks to assume a higher loss probability on their home loans. A Finance Ministry proposal to triple risk weights on mortgages prompted DNB ASA, Norway’s biggest bank, to announce higher mortgage rates last week. Other banks, including Nordea Bank AB’s Norwegian unit, followed suit this week.

“Norges Bank is currently backed by Norwegian banks, as the new capital adequacy requirements have led banks to increase rates,” Frank Jullum, chief economist at Danske Bank in Oslo said in an e-mailed response to questions. “It does not solve the problem, but it makes the task easier.”

The world’s fourth-richest nation per capita, which has so far withstood the recession engulfing much of the rest of Europe, is also starting to show signs of slowing amid slumping demand from its debt-burdened trading partners. Norway relies on exports to generate half its economic output.

Gross domestic product, excluding oil, gas and shipping, grew less than estimated in the fourth quarter as non-oil output expanded 0.3 percent, slowing from 0.8 percent in the prior quarter. Exports fell 0.1 percent in the quarter.

Gains in the krone, which hit a nine-year high against the euro in August, have kept inflation below the central bank’s 2.5 percent target since mid-2009. Annual underlying inflation, which adjusts for taxes, fees and energy prices, slowed to 1.1 percent last month from 1.2 percent in January.

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

To contact the editor responsible for this story: Jonas Bergman at

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