Norway Rushes to Hike Interest Rates Before Oil-Stoked Boom Ends
Governor Oystein Olsen’s commitment to tightening has surprised markets with a more hawkish outlook three meetings in a row.
(Bloomberg) -- Norway’s central bank is on a lonely march toward higher interest rates, torn between an oil industry running at full speed on its home turf and slowing growth abroad.
Governor Oystein Olsen’s commitment to tightening has surprised markets with a more hawkish outlook three meetings in a row. On Thursday, he raised the key rate for a third time in less than a year, and signaled that another increase could come as soon as September. He also penciled in a hike “before the summer” next year.
The 67-year-old governor is seeking to rein in an economy that’s running near full steam amid a boom in investments in its offshore oil industry. Inflation, anemic in most of the world, is anticipated to run above the 2% target over the next four years as Norwegian workers manage to extract wage gains amid low unemployment.
“Norges Bank has noted that the upswing in the oil industry and spillovers into the Norwegian economy may prove to be stronger than envisaged,” said Kyrre Aamdal, a senior economist at DNB ASA.
The situation is a stark contrast to other western economies where growth is slowing amid an escalating trade dispute between the U.S. and China. Also backed by strong fiscal stimulus stemming from its amassed wealth, policy makers in Oslo are now front-loading rate increases before oil investment growth slows sharply next year.
Norges Bank on Thursday raised its forecast for oil investment growth to 14% this year, but predicted an increase of just 1% in 2020 after one of the country’s biggest oil developments -- the Johan Sverdrup field -- is expected to come online later this year.
But prospects look dimmer after that for the country’s biggest industry. Norway is running out of places to look for oil and resources are dwindling, even though production is set to peak again in the middle of next decade.
So while Olsen acknowledged on Thursday that his country’s oil wealth sets it apart and will allow him to diverge from other policy makers, he knows that it won’t remain on the outside forever.
“When we look further ahead there’s a challenge for us in the sense that we have behind us this long period with strong stimulus from our petroleum sector,” he said. “Most likely this is going to be much more modest going forward, and we are going to be more like many other economies without this huge engine in the petroleum industry.”
To contact the reporter on this story: Sveinung Sleire in Oslo at ssleire1@bloomberg.net
To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Stephen Treloar
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