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No Change In Norway’s Interest Rates

James Boston
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No Change In Norway’s Interest Rates

The Central Bank of Norway offered few surprises when it announced this morning that it would leave it’s key interest rate unchanged at 1.5% for the sixteenth consecutive month. Deteriorating conditions affecting the Norwegian economy have prompted the Central Bank to hold the rate steady again this month but the rhetoric from the Bank’s Governor, Oeystein Olsen, suggests that Central Bank is remaining vigilant and prepared to act should the situation soften further. Olsen noted that both economic and price growth for Norway are broadly in line with projections for the time being but highlighted some challenges that could negatively affect this position.

Global economic factors have some role to play in the slowdown in Norway, as they do for most countries. The real challenge for Europe’s largest oil producer however is coming from the recent fall in oil prices. Brent Crude has dropped from $115 a barrel to just under $85 a barrel over the last five months. This no doubt directly affects the country’s balance of payments figures but it is also a threat to longer term growth. Large scale investment in oil production, which has been slower than normal in recent times, is becoming increasingly at risk as the low price of oil renders new projects unviable.

Although Norway is oil rich it faces a very high cost of extraction primarily due to the treacherous conditions in the North Sea. As the North Sea wells begin to reach maturity Norway has begun to invest in extraction from the Arctic Sea of the north coast of the country. This area is though to contain almost 40% of the country’s oil but has been largely left untouched to date due to the significant cost of extraction. At $85 a barrel it is difficult to return a profit on these Arctic Sea reserves, if the price falls much lower then it is easy to see how promised investment could quickly dry up.

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