Norway's Krone Little Changed After OECD Says Rates Should Rise

By Bo Nielsen

Aug. 20 (Bloomberg) -- The Norwegian krone was little changed against the euro after the Organisation for Economic Cooperation and Development said the country's central bank should consider raising interest rates to slow inflation.

The Paris-based OECD forecast the mainland economy will grow 3.25 percent this year, from 6.2 percent in 2007. A government report tomorrow will show the Norwegian economy expanded a seasonally adjusted 0.4 percent in the second quarter, up from 0.2 percent in the previous three months, according to a Bloomberg survey of economists.

``The continuing strength of the economy in early 2008 is certainly a reminder that the danger of overheating will not recede immediately and interest rates may need to go higher,'' the OECD said in an e-mailed report released today.

Norway's currency traded at 7.9554 per euro at 4:19 p.m. in Oslo from 7.9528 yesterday. It fell 0.3 percent to 5.3965 versus the dollar from 5.3824.

Royal Bank of Scotland Group Plc, the fifth-biggest currency trader, recommended investors should buy the krone against the Swedish krona and the British pound in a note sent to investors today.

``Interest-rate cuts in Norway are off the agenda until well into 2009,'' wrote Paul Robson, a currency strategist at RBS in London.

Norway's central bank raised the key rate to 5.75 percent in June and indicated it may lift it to 6 percent to prevent inflation from accelerating. Underlying consumer-price increases rose to a 7 1/2-year high of 2.9 percent in July.

The Swedish krona traded at 6.3774 per dollar, from 6.3654 yesterday, and was at 9.4011 per euro from 9.4062. Iceland's krona fell 0.6 percent to 83.13 per dollar.

Nordic government bonds were mixed. The yield on Sweden's 5.25 percent note due March 2011 rose 2 basis points, or 0.02 percentage point, to 4.26 percent. Norway's 6 percent government note maturing in May 2011 slid 5 basis points to 4.83 percent. Yields move inversely to bond prices.

To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net