DNB ASA, Norway’s biggest bank, says a 15 percent slump in the krone against the euro this year has left it too weak.
“The krone is weaker than we can see any natural reasons for,” Ottar Ertzeid, head of DNB Markets, said in a Dec. 16 interview at his Oslo office. The currency of Scandinavia’s richest nation will probably strengthen, albeit not to levels seen at the beginning of 2013, he said.
The decline, following central bank warnings it will cut rates to prevent excessive appreciation, has come as a welcome relief for exporters struggling to compete in an economy that is dominated by oil and gas. Norway’s economy has slowed this year, in part as exports have faced weak demand and as a boom in the housing market starts to reverse.
Prime Minister Erna Solberg said in an interview yesterday that exporters need to brace themselves for krone fluctuations and that the current weak exchange rate may not last.
“You never know what will happen, the international markets’ view on the currency is always difficult to foresee,” she said. Solberg, who took office in October, has vowed to boost productivity, infrastructure and taxation to increase competitiveness so that companies aren’t thrown by currency swings.
“We need to increase our competitiveness but if the demand side increases we will get help from that,” he said.
The krone slid 0.1 percent to 8.409 per euro as of 9:43 a.m. in Oslo.
Industry Minister Monica Maeland said yesterday in a separate interview that it’s not possible to make “political decisions” on the krone, even though its decline has been “clearly positive” for manufacturers.
The currency has fallen this year as the euro area emerged from its crisis, reversing a haven trade that had sent money flowing into Norway. The krone’s decline accelerated after central bank Governor Oeystein Olsen in June signaled the bank would cut rates to weaken the currency after falling import prices kept inflation below target.
The bank this month left its benchmark unchanged at 1.5 percent and pushed back tightening plans by a year to mid-2015.
The krone has slumped 11 percent this year on an import-weighted basis. That helped push underlying inflation to the bank’s 2.5 percent target in August for the first time since July 2009. Prices rose 2 percent in October.
The krone is still 25 percent overvalued against the euro, according to an Organization for Economic Cooperation and Development gauge ranked by purchasing power.
Norway, which is backed by an $810 billion sovereign wealth fund, is struggling to absorb an oil and gas industry that has driven up production costs and fueled the risk of overheating.
The “huge swings” in the kroner have been “surprising,” Ertzeid at DNB said. “For the central bank, this has made their job much easier.”