NORWAY – The head of Norway’s central bank says that lower interest rates may mean higher allocations to pension funds.

“Lower interest rates may also increase the need for allocations to pension funds,” said Norges Bank governor Svein Gjedrem.

The bank has cut interest rates during the course of this year, from six percent in January to 2.5% currently – although it stood pat when it last met on October 29.

“Companies account for a substantial share of the allocations to pension funds, and their ability to pay will be reduced as a result,” Gjedrem said in a speech to the Mid-Norway Chamber of Commerce and Industry in Trondheim.

“The impact of monetary policy occurs with a lag,” he added. “Our analyses indicate that a substantial share of the effects of an interest rate change will occur within two years.”

Gjedrem also noted that the projection for the 775.5 billion-crown (94.4 billion-euro) Petroleum Fund’s expected real return has been revised down substantially since the Revised National Budget for 2001.

The Petroleum Fund made a return of 7.7% in the second quarter, 0.07 percentage point higher than its benchmark.