Thursday March 26, 04:45 PM
UPDATE 2-Norway cbanker: Wd only intervene if NOK "out of line"
By George Matlock
LONDON, March 26 (Reuters) - Norway's central bank will only consider intervening on the Norwegian crown (NOK) if the currency becomes 'out of line', governor Svein Gjedrem said on Thursday, adding that this
is not necessary at present.
'Our stated policy is that we may intervene in the currency market for liquidity reasons. Another reason would be if the value of the currency was out of line with fundamentals in the economy and hindered our possibility to reach our inflation target,' Gjedrem said at a London presentation of the Norges Bank's Monetary Policy Report after it cut interest rates by 50 basis points to 2.0 percent on Wednesday.
'When it comes to interventions in the currency markets, we have not done that since January 1999,' he said, adding that those conditions for intervention had not so far been met.
The bank (TBHS - news) 's mandate is to target core inflation of 2.5 percent in the medium term.
'We are a very small and open economy. The development in our currency influences price inflation and the real economy more strongly than in most countries. We have seen large swings in our currency,' he said.
Gjedrem noted that the Norwegian crown weakened against the euro and the dollar until the end of the fourth quarter, then started appreciating against both. The crown has gained about 10 percent versus the euro this year after reaching all-time lows against the single European currency at the end of 2008.
'If we did (intervene), we would communicate it well in advance,' he added.
Asked by Reuters whether he saw the crown as a safe haven currency, he said: 'No. With oil prices changing so fast it cannot (be described as a safe haven currency).'
NO SPACE FOR BOND BUYBACKS, OIS MONEY MARKET
Gjedrem said the country's capital market was too small to afford a buyback of fixed income assets of the type carried out by central banks in the United Kingdom or the United States to kickstart stalling economies.
'We don't have the kind of market to buy as others do. It is not a very deep domestic currency (government) bond market, nor for commercial bonds, because most big companies borrow in foreign currencies as they are so export-orientated,' he said.
Gjedrem also said there was insufficient liquidity in Norway, which is not a member of the European Union, to establish an OIS market as seen in other countries. He said there was not enough overnight market trading to achieve this.
The Overnight Index Swap rates are used as a base line for calculating a spread with three-month interbank offered rates in the money market which is an indicator of the propensity for banks to lend.
'The crown market depends on international money markets. When banks lend to each other its via the swaps market. The market is too small to establish that (OIS) sophisticated kind of market,' he said.
OIL FUND NOT PROVINCE OF FINE-TUNING
The $323 billion Norwegian sovereign wealth fund, Europe's biggest shareholder, is in the process of shifting from a policy of investing 40 percent in equities to 60 percent, while reducing its fixed-income component to 40 percent.
Yet, last year, the fund lost 633 billion crowns, nearly $90 billion) on investments, posting its weakest return in the 10-year history of the fund, a negative 23.3 percent.
Gjedrem said it was not appropriate to 'fine-tune' the fund by putting off a decision to invest more in equities.
'We don't try to fine-tune this. A decision was taken to increase the allocation to equities to 60 percent from 40 percent. We have a strategy largely based on indexing,' he said.
'So we buy a lot when equity prices go down, and not so much when equity prices rise.'
(Reporting by George Matlock; Editing by Victoria Main) Keywords: MARKETS NORWAY GJEDREM
|
Send Article by Email
Send Article by IM
Blog This with Y! 360
Printable View
