Norges Bank's FX purchases

Illustration: euro and dollar

(09.10.2012) We estimate the daily purchases of foreign exchange by Norges Bank to the Government Pension Fund Global (GPFG) to stay unchanged from October to November. The National Budget from yesterday implies fewer funds to be transferred to the GPFG in 2013 than in 2012. Based on the Government's prognosis, daily purchases of EURNOK will average 280 million NOK through the eleven months the purchases are conducted. We estimate purchases of EURNOK equivalent to 300 million NOK a day in January 2013.

No change in daily purchases in November
Global Pension Fund Global (GPFG) is built up through transfers of foreign exchange from the State's Direct Financial Interest in Petroleum Activities (SDFI) and through Norges Bank's purchases of foreign exchange in the market. The transfers from SDFI and the purchases from Norges Bank are allocated to a bufferportifolio (Petrobufferportifolio) held by the central bank before transferred to the GPFG.

In the revised budget for 2012, transfers to the GPFG where estimated at 266 billion NOK. In yesterday's 2013 budget, transfers this year where revised up to 275 billion NOK. The FX revenues in 2012 from SDFI where in the revised 2012 budget estimated at 197 billion NOK. However, SDFI has FX expenses, and all FX revenues are therefore not transferred to the Petrobufferportifolio. We estimate transfers from SDFI in 2012 at 190 billion NOK, of which 115,5 billion where transferred by the end of June. At the end of June, the Petrobufferportifolio held 31,2 billion NOK, the highest level since 2004. And by the end of October this year, Norges Bank's total purchases of EURNOK would be the equivalent of 79,5 billion NOK.

Illustration: Figure showing daily purchases og FXThe daily purchases of FX by Norges Bank have had a tendency to increase towards year end. Due to a modest estimate of the oil price in the budget, the transfer to the GPFG has been revised higher as the actual price of oil has exceeded that of the budget. However, this has resulted in Norges Bank being an important participant in the EURNOK market, making out a considerable part of the daily turnover. From a central bank point of view, this is not desirable, which is why Norges Bank has expressed their intention of smoothing the daily purchases throughout the year.

Thus, eventhough the transfer to GPFG was revised slightly up yesterday, this is more than covered by the increased FX revenues from SDFI and the Petrobufferportifolio. And there is no need for an increase of the daily purchases in November.


Lower transfers to GPFG in 2013
In 2013, the Government expects the transfers to the GPFG to decline from 275 billion NOK to 250 billion NOK. FX revenues from the SDFI is estimated at 193 billion NOK, of which we estimate 185 billion will be transferred to the Petrobufferportofolio. The remaining 65 billion NOK will be equivalent to 280 million NOK a day.

The Government's prognosis for the price of Brent oil in 2013 is 625 NOK per barrel. This is slightly lower than our estimate of the oil price, given our prognosis of a weaker krone against the dollar in 2013 (we forecast USDNOK at 6,26 in Jan-13, 6,35 in Apr-13 and 6,17 in Oct-13). A weaker krone or a higher oil price will increase the revenues from the petroleum activity, and vice versa. Higher revenues would most likely increase the daily purchases by the Norges Bank given the high level of the Petrobufferportifolio.

See Norges Bank's Economic Commentaries 3/2012 for an elaboration of the petroleum fund mechanism and Norges Bank's foreign exchange purchases for the GPFG.