Norwegian Krone (NOK) Exchange Rate Tumbles amid Central Bank Concerns

The Norwegian Krone fell by around 1.35% against the Pound (NOK/GBP) and weakened to 9.0715 against the Euro (EUR/NOK) over the course of the European session. While the Pound came under pressure as a result of the decline in UK house price growth and the Euro was pressured by European Central Bank (ECB) stimulus speculation, the Krone posted broad-based declines as a result of comments issued by the Norwegian Central Bank. Norges Bank Governor Oeystein Olsen stated that the nation is on the brink of a ‘severe downturn’ as a result of plunging crude oil prices. During the central bank’s policy meeting it opted to cut the main interest rate to 1.25%. The move was unexpected and caused an almost 2% depreciation in the NOK/EUR exchange rate. The Norwegian Central Bank had previously held interest rates steady for almost three years. Olsen also intimated that another interest rate cut could be on the cards for next year.

Olsen stated; ‘Our job now is that we need to prevent a severe downturn in the economy. Overall, that is presently the major concern of the board. That explains why we have reduced the rate.’ He also stated; ‘the outlook for the Norwegian economy [being] notably weaker than envisaged earlier [Norges Bank] attaches importance to countering the risk of a pronounced downturn in the Norwegian economy.’

In the statement accompanying the policy decision, Norges Bank observed; ‘Growth prospects for the Norwegian economy have weakened. Activity in the petroleum industry is softening and the sharp fall in oil prices is likely to amplify this tendency. This will have a spillover effects on the wider economy and unemployment may edge up ahead. At the same time, the Krone has depreciated markedly, which is helping to dampen the effects on the Norwegian economy and underpin inflation.’
Next week the Norwegian Krone could experience volatility as a result of Norway’s trade balance report. Of course, movement in the commodities market could also have an impact on the direction taken by the Krone.