Norway to Curb Krone Gains as Best AAA Surplus Lures Buyers

Norway pledged to counter krone gains that threaten its exports as the widest budget surplus of any AAA rated nation draws investors seeking refuge from debt crises in the U.S. and Europe.

The krone is up 12 percent against the dollar since a Nov. 30 low and reached a four-year high against the euro this month. Norway, which like Switzerland isn’t a member of the European Union, posted the widest budget surplus of any top-rated sovereign last year at 10.5 percent of gross domestic product, according to Fitch Ratings.

The krone’s strength is “probably largely due to the uncertainty we see and, of course, Norway’s solid economy attracting capital to Norway,” Finance Minister Sigbjoern Johnsen said yesterday in an interview in Oslo. “And that underlines how important it is for us, through our fiscal policy, to do what we can to reduce the pressure on interest rates and thereby also on the krone.”

Curbing the ascent may prove difficult. The surplus of the world’s seventh-largest oil exporter will widen to 12.5 percent of GDP this year, while the economy, excluding oil and shipping, will grow 3.3 percent this year and 4 percent in 2012, the Organization for Economic Cooperation and Development said in May. That’s about twice the expansion rate in the euro area, the OECD estimates. Norway’s krone, which traditionally tracks oil, has also outperformed crude which slumped this month.

Rock Solid

“The oil price has fallen somewhat from its high level, while the Norwegian krone remains strong because of its rock-solid government finances and continued good growth in Norway,” said Kari Due-Andresen, a senior economist at Svenska Handelsbanken AB in Oslo.

The krone was the second-best performing major currency yesterday after Sweden’s krona against the dollar, the euro and the yen, gaining 1.5 percent against the dollar to 5.4382. Today, the krone lost 0.7 percent against the dollar, declining for the first day in four, to trade at 5.45738 at 9:33 a.m. in Oslo. Norway’s krone was the third-worst performing major currency today against the dollar, the yen and the euro.

Policy makers across the globe are stepping up efforts to guide exchange rates as a stock market rout has investors hunting for havens.

Global Interventions

Europe’s sovereign debt crisis and Standard & Poor’s downgrade of the U.S. have driven investors to the perceived safety of Japanese yen and Swiss francs.

Japan moved to curb yen appreciation on Aug. 4 in an effort to stem “ongoing one-sided moves” that would hurt the county’s recovery from a March earthquake, according to Finance Minister Yoshihiko Noda.

South Korea’s government is reviewing “all possibilities” on curbing capital inflows, Finance Minister Bahk Jae Wan said on Aug. 4, while the Philippines’ Central Bank Governor Amando Tetangco the same week said the country was prepared to impose controls to cap volatility in the peso after the currency rose to a three-year high versus the dollar.

The Swiss central bank is assessing “a whole range of options” to prevent further appreciation of the franc, which reached a record against the euro this month. The Alpine nation’s economic outlook has “deteriorated substantially” after the franc’s surge against the dollar and euro, the Zurich-based bank said earlier this month.

Oil, Krone Disconnect

Paul Mackel, senior currency analyst in London at HSBC Holding Plc, said the relationship between Norway’s krone and oil “has broken down.”

Even if oil falls, the krone “should remain relatively resilient because it’s a sound sovereign story compared to some of the ugly stories out there at present,” Mackel said in an interview last week.

Norway, which together with Switzerland boasts Europe’s lowest jobless rate, is trying to limit its currency’s strength to protect exporters such as aluminum producer Norsk Hydro ASA. The government’s warning comes as the Swiss franc, which hit a record high against the euro on Aug. 10, pares gains as that country’s central bank threatens to act to weaken the currency.

Rate Rise Scrapped

Norway’s central bank this month scrapped a planned rate increase and signaled it may shelve any monetary tightening for the remainder of the year as global market turmoil risks derailing an economic recovery. Norway’s benchmark OBX stock index is down 15 percent this year. Norsk Hydro lost 22 percent in the period. Hydro, which sells aluminum in dollars, will see its income hurt if the krone continues to strengthen against the dollar, spokesman Halvor Molland said by phone yesterday.

“What we are worried about is the export oriented companies because they can have a double influence from weaker international markets and the growth of expenses in Norway,” Trade Minister Trond Giske said in an interview. Norway also faces higher interest rates as wage growth fuels domestic demand, which can “weaken” competitiveness, he said. “Economic policy needs to take this into account.”

The government will this year seek to limit expenditure to 4 percent of its $550 billion sovereign-wealth fund, as stipulated by its fiscal rule. The Finance Ministry breached the rule in 2010 and 2009 in an effort to pad the economy against the fallout of the global crisis.

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