Interest rate cuts unlikely answer – Dagens Næringsliv

Interest rate cuts unlikely answer – Dagens Næringsliv

Lower interest rates will hardly facilitate the restructuring Norway must go through as a result of the fall in oil prices.

Published: 10/12/2014 – 9:58 p.m.

The article is added to your reading list.

Oil brake is here. Just since June, oil prices have fallen by $ 50 a barrel, and ahead, substantially lower prices than for only a short time ago.

Oil brake hit us twice. On the one hand, many years of steady increase in the ratio of our export and import prices (exchange ratio) followed by decline. A positive price contribution to national income will be turned into a negative. Wage growth will have to be muted. Government petroleum revenues will decline and the Fund – and thus the phasing of oil money – will grow slower than before.

More importantly is that demand from the oil industry will decline (Figure). The main reason is that the Norwegian shelf is mature, with fewer major developments, but the downturn exacerbated by oil price fall. In October estimated the government an annual reduction in demand here equal 0.4 percent of mainland GDP. In the short run fall greater. We estimate that petroleum investments least cut by one quarter until 2017. Thus, it looks as GDP growth below trend and more job ahead.

Once we slow down monetary policy (interest rates) the first-defense. While Norges Bank in September announced unchanged interest out next year, and then gradually increase, we believe the central bank today set a very high likelihood of interest rate cuts in 2015. We estimate that the interest rate cut by one quarter percentage point before next summer. We are not alone. Half of analyst corps waiting 1-2 rate cuts next year, the market is pricing in the same.