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Norges Bank Appointee Says Krone to Steer Rate Moves

Oeystein Olsen poses in this undated handout photograph. Source: Statistics Norway via Bloomberg
Oeystein Olsen poses in this undated handout photograph. Source: Statistics Norway via Bloomberg

Oct. 22 (Bloomberg) -- Norway’s central bank is likely to increase the role of the krone in decision making as Governor Svein Gjedrem’s successor signals the bank can’t afford to raise interest rates if policy makers abroad don’t do the same.

“Norges Bank cannot go alone, for sure; international developments including interest rate paths abroad will potentially affect” policy “via the exchange rates,” said Oeystein Olsen, who today was appointed central bank governor starting Jan. 1, in an interview in Oslo. Gjedrem completes his second and final six-year term on Dec. 31.

Norges Bank, which last October became the first in Europe to scale back crisis easing, has kept its main rate at 2 percent since May as risks to the global recovery prompted the bank to adjust policy to avoid fueling krone gains that hurt exporters. The bank has said it may resume tightening at the “turn of the year.” Olsen in an Aug. 25 interview said rate rises should be delayed until summer 2011.

“It is part of the picture, also regarding future inflation, to have a reasonably stable krone or to avoid too strong movements in both directions,” Olsen said today.

The three-month forward-rate agreement due June 2011 slipped 3 basis points to 2.575 percent as of 4:06 p.m. in Oslo, according to data available on Bloomberg. The one-year swap rate slipped 2 basis points to 2.67 percent.

“Mr. Olsen is perceived as more dovish than the current governor,” Citigroup Inc. currency strategist Valentin Marinov said in a note to clients.

Policy Balance

Olsen will need to balance policy to steer a recovery in consumer demand in the economy of the world’s second richest country per capita without hurting trade competitiveness.

Asked whether the country’s exporters can afford a stronger currency, Olsen said “some can, some might be hurt already by the present level, but in general the competitiveness for Norwegian manufacturers and other competitors is important.”

The krone rose 0.6 percent against the euro, after earlier weakening, to trade at 8.0989, bringing this year’s gains to 2.4 percent.

Finance ministers and central bankers from the Group of 20 nations began talks in Gyeongju, South Korea, today aimed at easing tensions over global currency distortions. Officials are trying to ensure global exchange-rate imbalances don’t hurt trade.

Global Context

Norges Bank’s three rate increases since October to 2 percent pushed up the krone by 13 percent against the euro from a September 2009 low through a May high. That gain hurt exporters, including Norsk Hydro ASA, Europe’s third biggest aluminum maker. Exports, which make up 42 percent of Norway’s output, fell in the first two quarters of the year.

The bank has two more scheduled rate meetings this year, one next week and one in December.

The current rate path indicates borrowing costs will rise to an average 2.5 percent next year and 3.25 percent in 2012. By contrast, the U.S. Federal Reserve plans to keep its rate “exceptionally low” for an “extended period,” it said last month. European Central Bank President Jean-Claude Trichet said on Oct. 12 the ECB’s 1 percent benchmark is “appropriate” as some eurozone members remain mired in a sovereign debt crisis.

Norway’s underlying inflation, which adjusts for energy and taxes, has lagged behind the central bank’s 2.5 percent target since August last year. The rate stood at 0.9 percent last month. Norges Bank said last month that inflation is “low,” as it left its benchmark rate unchanged.

Olsen will “perhaps be somewhat less concerned about inflation, perhaps less believing in the risk of inflation,” said Knut Anton Mork, chief economist at Svenska Handelsbanken AB in Oslo, in a phone interview today. “There is a chance over time” he will focus more on the krone.

To contact the reporter on this story: Josiane Kremer in Oslo at jkremer4@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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