The ongoing European debt crisis has led to the ‘haven’ Norwegian Krone strengthening by roughly 22 per cent against the Euro over the last four years, achieving a nine-year high against its common currency rival last August.
The Norwegian Krone Exchange Rate was in the region of 7.4950 Krone to one Euro as of 10:51 am GMT
The Krone’s advance has prevented inflation from rising to Norges Bank’s 2.5 per cent target for almost four years and is proving damaging to the nation’s exports. Exports are responsible for half of Norway’s total economic output, but with many of the nations trading partners struggling, the Krone’s strength is acting as a deterrent and hurting exporters.
As the Krone rose Norges Bank cut rates to near record lows in both 2011 and 2012, and the spate of household borrowing which ensued saw private debt levels soar. With house prices rising by an annual 8.5 per cent in February, Norway is also perilously close to experiencing a housing bubble.
While raising rates could help reduce housing and private debt concerns, in-mid February the Krone achieve a trade weighted record high of 84.30 which prompted the Norwegian central bank to assert its readiness to slash rates further in order to limit additional Krone gains.
Although Norges Bank chose not to issue a rate cut this month it didn’t raise rates either, instead holding its benchmark interest rate for a sixth month as predicted by economists.
The central bank also implied that the benchmark will remain at its present level for longer than previously anticipated, with Norges Bank Governor Oeystein Olsen stating: ‘The analyses suggest that the key policy rate be kept low longer than previously anticipated. The first increase in the key policy rate is now projected to take place in spring 2014.’
News of the delay in rate increases led to the Krone tumbling against the Euro, with the Euro achieving over 7.5000.
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