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Norway is confronting both a strong currency and a housing boom, complicating interest rate policy.
Quick, think of the safe haven currencies.
Did you include the Norwegian krone? You should.
Despite its relatively low liquidity, "the sheer shortage of viable alternatives has meant that the Norwegian unit has remained firmly in demand through the course of the Euro-area crisis," say the currency strategists at Bank of New York Mellon. Strong oil prices don't hurt either.
Norway doesn't like having a strong krone any more than Switzerland does because it places such a drag on export-driven industries. But so far, interest rate cuts have failed to stem the krone's rise.
Even more problematic is the fact that "Norway is home to a particularly impressive house price boom," the strategists wrote in a note to clients. They add that a study of the Norwegian property market by the San Francisco Fed - yes, the San Francisco Fed - found "that Norwegian property prices are currently 125% of their historic price-to-income ratio and, even more frothy, some 170% of their historic price-to-rent ratio." Any reduction in interest could wind up giving the real estate market even more steam.
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