Record Weak Krone Is Pressure Point for Norges Bank's Rate Plan
Record Weak Krone Is Pressure Point for Norges Bank's Rate Plan
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The battered krone is a rising challenge for Norges Bank’s plan to keep interest rates unchanged after four increases over the past year.
And while Norwegian policy makers meet this week, with a rate decision announced on Thursday, we will likely have to wait until December to see just how big a challenge.
The decision on Thursday is an interim meeting and doesn’t include any updated economic forecasts or a press conference. The Oslo-based bank is anticipated to keep rates unchanged and repeat its outlook that the policy rate “will most likely remain at this level in the coming period.”
Dubbed the “last hawk” by local economists, the bank in September raised rates for a fourth time over the past 12 months to cool the oil-stoked economy. It has so far been undeterred by a global slowdown and the renewed stimulus from the European Central Bank and the U.S. Federal Reserve. It penciled in a slight chance for another hike early next year, but said there was also “considerable” global uncertainty.
That uncertainty, and a plunge in the price of oil, weakened the krone to an all-time low against the euro this month, potentially ratcheting up inflation that is already above target.
Economic data in western Europe’s largest producer of oil and gas have since September been in the lower end of market predictions. The price of Brent crude has plunged about 9%, while labor market and inflation data have been largely in line with the central bank’s estimates. In an interview earlier this month, central bank Governor Oystein Olsen said that recent data had been on the weak side, but that was mostly confidence indicators and not hard data.
Here’s what the largest Nordic banks say about the upcoming rate decision this week.
Nordea Senior Economist Erik Bruce“Norges Bank does not wish to send any strong signals now, however, this does not mean that new information in sum is neutral. To us, the NOK weakening is the main news since September. If this lasts until the new rate path is released in December, NOK will on average be 2% weaker than expected since the September path.” |
Swedbank economist Kjetil Martinsen“The policy rate is already normalized and the bank could afford to take a more wait-and-see approach going forward. Regardless, the probability of Norges Bank actually joining the largest central banks in cutting rates is markedly diminished with a weak NOK.” |
SEB chief strategist Erica Blomgren Dalsto“Norges Bank is widely expected to remain on hold at 1.50% at the upcoming October 24 rate decision and no new policy signals are likely. Since the September monetary policy report, domestic activity data have on balance been somewhat weaker than expected while inflation has been marginally higher. There is still considerable uncertainty surrounding global economic developments, but the NOK has once again been weaker than expected.” |
Handelsbanken chief economist Kari Due-Andresen“It’s as good as certain that the policy rate will be kept unchanged, at 1.5%. Data since the September meeting has been scarce and the board never deviates from strategy at meetings in between monetary policy reports unless something extraordinary has happened.” |
--With assistance from Nick Rigillo.
To contact the reporter on this story: Sveinung Sleire in Oslo at ssleire1@bloomberg.net
To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net
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