Norway Seen Delaying Rate Increases as Oil Investments Fade

Norway’s central bank will probably keep interest rates unchanged and delay tightening to late next year as borrowing costs abroad decline and an investment boom in western Europe’s biggest crude producer fades.

Norges Bank will leave its overnight deposit rate at 1.5 percent in a decision scheduled to be announced at 10 a.m. tomorrow in Oslo, according to all 22 economists surveyed by Bloomberg. DNB ASA, Nordea Bank AB, Svenska Handelsbanken AB and SEB AB, all primary dealers, predict it will delay an increase to beyond the current “summer” of 2015 projection.

The bank “will not signal a chance for a rate cut, but the drop in oil investments and interest rates abroad will push the rate path down,” said Erica Blomgren, chief strategist at SEB in Oslo. “We expect the bank to signal the first hike in the third quarter next year at the earliest, with a small chance of another hike before the end of 2015.”

The economic expansion in Scandinavia’s richest economy is slowing as offshore investments abate and record household debt has weighed on consumer spending. Oil companies predict investments will drop by as much as 21 percent next year as they grapple with high cost levels, a survey by Norway’s statistics agency showed last week.

Battling Krone

Norway’s plans to raise rates are being called into question as other central banks in Europe are returning to easing mode. The European Central Bank this month cut its deposit rate below zero for the first time, while policy makers in Sweden have signaled they’re ready to lower next month to keep deflation from taking hold in the largest Nordic economy.

Unlike their colleagues in Sweden and Frankfurt, policy makers in Norway have been successful in meeting preferred levels of inflation.

Governor Oeystein Olsen warned last year he stands ready to cut rates should krone strength hamper the bank’s policy goals. The currency has weakened about 6 percent against the euro over the past 12 months. That helped pushed underlying inflation to 2.6 percent in April this year, reaching above the 2.5 percent target for the first time since 2009.

“If they present a path where they push the interest rate hike by one quarter, there will be muted effects” for the krone, said Kari Due-Andresen, a senior economist at Handelsbanken.

Peaking Investments

Norway’s economy expanded in the first quarter, boosted by consumer spending as registered unemployment remains below 3 percent. The economy grew 2 percent last year, faster than the 1.75 percent rate predicted by the bank.

The statistics agency report last week showed that oil investments are seen reaching a peak this year after tripling during the past decade. Statoil ASA, Norway’s biggest oil producer, said in February it would cut planned investments by 8 percent over the next three years. Norway relies on the oil industry for about 22 percent of its economic output and has built an $880 billion wealth fund from its offshore revenue.

Erlend Loedemel, chief economist at Arctic Securities in Oslo, said the bank will probably take a “cautious and gradualist approach” and wait for next quarter’s oil investment survey. Arctic predicts the bank will delay its planned rate increase to the third quarter of 2015.

DNB, Norway’s largest bank, expects the central bank will lower its rate path by as much as 25 basis points in 2015-16, said Kjersti Haugland, an analyst. Haugland expects Norges Bank will cut its forecast for mainland economic growth next year to as low as 2 percent from the 2.5 percent forecast in March. DNB sees mainland growth at 1.8 percent next year.

The central bank will probably delay raising rates to “autumn” of 2015, she said.

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