Norway’s krone slumped to the lowest level in more than two months versus the euro after central bank Deputy Governor Jan F. Qvigstad signaled persistent currency strength would influence the bank’s next rate decision in March.
The currency, which has emerged as a haven from Europe’s debt crisis, slid as much as 0.8 percent against the euro to the lowest level since Oct. 31 and 1.2 percent versus the dollar. It traded at 7.4205 per euro and at 5.5540 per dollar as of 4:28 p.m. in Oslo, making it the worst-performing major currency versus both the euro and the greenback.
“If the kroner is as strong as it is now for a long time, also until March, that of course has an obvious effect on the interest rate,” Qvigstad said in Bergen, Norway today, after holding a speech at the Norwegian School of Economics.
Policy makers kept the bank’s overnight deposit rate on unchanged at 1.5 percent for a fifth meeting last month and signaled a possible rate increase as soon as March after low borrowing costs fueled household credit growth and sent house prices to records. Since then the import-weighted krone index reached 84.7 this month, the strongest level since at least 1999. The index has appreciated beyond the bank’s 85.75 forecast for this year. A lower reading indicates a stronger currency.
“Norges attempts to talk the krone down,” Henrik Gullberg, a senior currency strategist at Deutsche Bank AG, said in a note to clients. “These comments from Norges Bank Deputy Governor Qvigstad show that the bank is getting uncomfortable with the pace of appreciation in the trade-weighted krone.”
Norway, which is backed by a $700 billion wealth fund and boasts the largest budget surplus of any AAA rated nation, has provided investors refuge from Europe’s debt crisis. Krone gains have helped pushed inflation well below the central bank’s 2.5 percent target.
“The kroner is now at a record strength, that’s true, but our experience is also that when people try to make a profit out of that, they discover that the liquidity of the Norwegian market is quite limited,” Qvigstad said.
The world’s fourth-richest nation per capita is withstanding a recession in the euro area, and even displaying signs of overheating, amid record investment in Norway’s petroleum industry. House prices have doubled since 2002 and were up an annual 7.7 percent last year, according to the Norwegian Association of Real Estate Agents.
Weak global growth prospects abroad have curtailed the central bank’s scope to address overheating risks without fueling krone gains. Central bankers in the euro area, the U.S. and Japan have resorted to additional stimulus, pushing rate increases further out in time.
Norwegian policy makers cut the bank’s benchmark twice since December 2011 as the krone’s strength threatens exporters in the Nordic nation. Exports fell an annual 9.7 percent in December, according to a statement by Statistics Norway today.