May 11, 2017 / 9:37 AM / 2 months ago

Norway 2017 budget reduces spending of cash from wealth fund

OSLO (Reuters) - Norway will spend less money from its $940-billion sovereign wealth fund this year than had initially been expected in a bid to prevent a rally in its currency, and at a time when the economy is gathering pace.

The new budget called for a cut in the spending of oil revenues to 220.9 billion crowns ($25.8 billion) from the original 225.6 billion crowns planned last October.

"We must avoid pushing down so hard on the accelerator that we jeopardize the low interest rate level and the crown's weakness," the government wrote in its revised 2017 fiscal plan on Thursday.

The Nordic country's economy is on the mend after a two-year slowdown brought on by a 56-percent fall in crude prices since mid-2014.

The mainland economy, which excludes the volatile oil and shipping sectors, is seen growing 1.6 percent in 2017 and 2.4 percent next year.

"I am glad it is going better for the Norwegian economy," Finance Minister Siv Jensen told public broadcaster NRK. "But we must still be mindful of the competitiveness of the Norwegian economy."

The revised budget was seen by several economists as mostly neutral for Norwegian interest rates, with the key policy rate left at 0.5 percent last Thursday.

"This means very little for the Norwegian central bank," said Kyrre Aamdal, a senior economist at DNB Markets.

The crown was unaffected by the news of the revised budget. Instead, it was strengthening on Thursday due to rising Brent crude prices, trading at 9.3461 at 0934 GMT from an intra-day low of 9.3872.

Additional reporting by Gwladys Fouche, Terje Solsvik and Ole Petter Skonnord, writing by Terje Solsvik and Gwladys Fouche; editing by John Stonestreet

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