Norway’s krone weakened to the lowest level against the euro in almost two weeks after an unexpected slowdown in consumer price growth increased pressure on the central bank to cut its benchmark rate.
The currency, which has emerged as a haven from Europe’s debt crisis, slumped as much as 0.5 percent to 7.5034 against the euro, the weakest level since March 28. It traded at 7.4996 as of 11:26 a.m. in Oslo. The krone was weaker against all major currencies in a basket compiled by Bloomberg except for the Japanese yen.
The krone weakened after data showed that underlying inflation slowed for a second consecutive month in March to the slowest pace since April last year. The inflation rate, adjusted for taxes and energy prices, fell to an annual 0.9 percent from 1.1 percent in February, Statistics Norway said today. Prices were estimated to rise 1.1 percent, according to the median of 11 economist estimates compiled by Bloomberg.
Norges Bank “can no longer look the other way while the inflation target is slipping,” Kari Due-Andresen, an economist at Svenska Handelsbanken AB said in a note to clients. “The very weak development in price growth will force Norges Bank to cut the interest rate.”
Policy makers, who left the benchmark interest rate unchanged at 1.5 percent last month, have signaled a possible rate cut this year as krone gains threaten to cool growth and inflation in Europe’s second-richest nation per capita.
The krone rose to a record on an import-weighted basis in February and has helped keep inflation below the bank’s 2.5 percent target since 2009.
The March headline inflation rate was 1.4 percent in the year and consumer prices rose 0.3 percent in the month. Policy makers will announce the next interest rate decision on May 8.
“As Norges Bank seldom acts on a meeting that is not backed up by a monetary policy report, we believe the cut will come in June, rather than in May,” Due-Andresen said.
To contact the reporter on this story: Josiane Kremer in Oslo at firstname.lastname@example.org
To contact the editor responsible for this story: Tasneem Brogger at email@example.com