Norway to Buy Record Amount of Kroner as Oil Crash Stings

  • Purchases could be sign of more budget stimulus to come
  • Data reveal Norwegian economic slowdown is deepening

Norway’s central bank is becoming a force for the currency markets to contend with after it raised krone purchases to a record in February as Scandinavia’s richest nation takes a hit from the collapse in oil.

The Nordic country will buy 900 million kroner ($104 million) a day next month as it converts its oil income into local currency to cover budget needs, according to a statement from the Oslo-based central bank. That’s an increase from 500 million a day in December.

“This is a substantial change,” said Magne Oestnor, an analyst in Oslo at DNB ASA, Norway’s biggest bank. “This will add pressure to the appreciation of the krone. Suddenly Norges Bank goes from being just a medium size flow everyday to starting to be a flow to reckon with.”

The bank started purchasing kroner for the first time in October 2014, marking the start of a new era for western Europe’s biggest oil and gas exporter, which has amassed a $800 billion in its sovereign wealth fund.  The government is this year using a record amount of its oil wealth to support growth and has said it stands ready to provide more stimulus if needed.

Data on Friday showed the economic slowdown is deepening, with registered unemployment rising to the highest since 2005 and retail sales declining more than 1 percent in December. A report on Tuesday showed that nearly 50,000 layoff and job cut notices were filed last year, twice as many as in 2014.

The poor economic data offset the effect of rising krone purchases. The currency lost 0.4 percent against the euro and was trading at 9.465 per euro as of 11:31 a.m. in Oslo.

Brent crude has lost about 30 percent over the past year. It was little changed at 33.76 per barrel as of 11:46 a.m. local time.

Oestnor said the rising purchases have two possible explanations: either the government has revised its tax income predictions lower or it’s planning to use more petroleum revenue in the budget. He said it’s unlikely the government has already decided whether it should unleash more stimulus.

The announcement comes four days after Finance Minister Siv Jensen said the government is “prepared to act if needed.” She was speaking after an extraordinary meeting on the economy with the prime minister and Norges Bank Governor Oeystein Olsen.

Since the government’s spending of oil money now exceeds offshore income, it’s also this year dipping directly into its massive sovereign wealth fund for the first time.

Friday’s data “supports the case for a bleak outlook” as “the downside risks to the real economy” have increased, said Nils Kristian Knudsen, a currency strategist at Handelsbanken.