Norway’s Oil Splurge No Central Bank Handcuff, Johnsen Says

Norway’s most expansionary budget since the height of the global financial crisis in 2009 won’t put any pressure on the central bank to tighten monetary policy, Finance Minister Sigbjoern Johnsen said.

Western Europe’s largest crude exporter will use 3.3 percent of its $740 billion oil fund to plug deficits this year, representing a 19 percent increase from 2012, the Finance Ministry said yesterday. That will deliver the biggest fiscal boost to Europe’s second-richest economy per capita in four years, it said.

“In my view the proposals in the revised budget are more or less neutral,” Johnsen said in an interview in Oslo yesterday. “I leave the actual and concrete measures in monetary policy to the central bank.”

Norges Bank is struggling to combat overheating as property prices continue to climb from record levels and household indebtedness swells to twice disposable incomes. Governor Oeystein Olsen -- who will leave the benchmark deposit rate at 1.5 percent today, according to a Bloomberg survey -- has tried to design policy to prevent the krone appreciating without fueling credit growth. Yesterday’s budget will make rate cuts less likely, according to Nordea Bank AB.

“The central bank had based their forecasts on a slightly more expansionary budget than last autumn but this is even more expansionary than Norges Bank’s forecast,” Katrine Boye, senior economist at Nordea, said by phone. “So this is a strong argument for Norges Bank not to consider a rate cut.”

September Elections

Of the 23 economists surveyed, five predict a rate cut today to 1.25 percent. Norges Bank is due to announce its decision at 2 p.m. in Oslo.

While the government, which is trailing behind the opposition ahead of September elections, argues its budget is well within a self-imposed 4 percent cap on oil-fund spending, that’s left plenty of scope for extra stimulus.

Norway’s oil fund, created in 1996 to prevent the economy from overheating by investing petroleum wealth abroad, has quadrupled in size since 2005. It will grow a further 42 percent by 2020, the government estimates. While the nation’s oil wealth has shielded it from Europe’s debt crisis, it now risks fueling a housing bubble as Norwegians look for assets to channel growing incomes into.

“There are always adjustments,” Johnsen said. “There are some unexpected expenditure that we didn’t foresee in the original budget last autumn.”

Outlook Cut

The government yesterday cut its forecast for mainland economic growth in 2013 to 2.6 percent from 2.9 percent and predicted a 3 percent expansion next year. Including oil and gas production, gross domestic product will grow 1.4 percent this year, slowing from 3.2 percent in 2012. The government sees total exports falling 1.3 percent in 2013, led by a 5.5 percent decline in oil and gas shipments.

The krone slid 0.2 percent to 7.6605 against the euro as of 10:40 a.m. in Oslo, the weakest level since April 25.

Near-record low interest rates have boosted consumer spending in the Nordic region’s second-largest economy, pushing private debt levels to all-time highs as property prices surge. Home prices jumped 7.7 percent last year, and the financial regulator and the government are tightening capital and mortgage lending rules to cool the market.

The Nordic nation places most of its oil and gas revenue in a fund that invests abroad to avoid stoking inflation in the domestic economy. The Government Pension Fund Global is Europe’s largest equity investor. A fiscal spending rule limits the use of petroleum revenue to 4 percent of the fund.