Norway Government Says Central Bank Is Winning Krone BattleSaleha Mohsin
The Norwegian central bank’s efforts to tame the krone are paying off for exporters as the economy of western Europe’s largest oil producer slows, Industry Minister Monica Maeland said.
“I don’t know if it’s enough but it is working,” Maeland, who took office in October, said yesterday in an interview in Oslo. “The exchange rate of the Norwegian krone is important for the export industry and the fact that it has weakened is good.”
The krone has lost 12 percent against the euro this year, paring gains since 2008 when it emerged as a haven from Europe’s debt crisis. Norway’s purchasing managers’ index released this week showed export orders rose to the highest since June 2011, helping the economy as house prices and retail sales slide.
Central bank Governor Oeystein Olsen has in the past demonstrated his willingness to use interest rates to halt krone appreciation. Olsen said in a Bloomberg News interview in October that the krone has played a part in decisions before and will continue to be an important driver in determining rate moves.
The krone slid 0.1 percent to 8.3775 per euro as of 9:22 a.m. in Oslo.
It’s is still 26 percent overvalued against the euro, according to an Organization for Economic Cooperation and Development gauge of 12 currencies ranked by purchasing power. The government and the central bank have repeatedly voiced concern that excessive krone strength poses a threat to the economy.
Norway, which is backed by an $810 billion sovereign wealth fund, is struggling to absorb an oil and gas industry that has driven up production costs and fueled the risk of overheating. Maeland said Norway needs to be creative in how it increases competitiveness.
“We’re going to have an oil and gas industry for a long time but we can use that knowledge in other areas and in other ways, there are lots of possibilities,” she said. “We’re not going to compete on costs; that’s not possible for us.”
Prime Minister Erna Solberg warned in an interview last month that she won’t hesitate to cut spending should budget impulses force up the krone and undermine export competitiveness. Those comments drove down the currency.
While Norway’s oil wealth protected it form Europe’s debt crisis, the government sees the mainland economy, which excludes oil and gas output, slowing to 2 percent this year, from 3.4 percent last year. Gross domestic product by that measure will grow 2.5 percent next year, it estimates.
The slowdown is normal for an economy that has grown as much as Norway has, Maeland said. “It’s going to be slow but we’re still going to grow next year.”