“You can only fool the market for so long - - it’s time to deliver.”
That’s the view at SEB AB, Scandinavia’s biggest currency-trading bank, where Chief Strategist Erica Blomgren says Thursday is the day Norway’s central bank will deliver the rate cut it has clearly signaled will come this month. The bank can’t afford to disappoint because policy makers have a “fear of fueling krone strength,” she said.
As western Europe’s biggest oil producer struggles to adjust to last year’s plunge in the price of crude, the central bank is trying to ensure that a strong krone doesn’t add to exporters’ misery. That’s why 16 of the 17 analysts surveyed by Bloomberg say Norway will cut its benchmark overnight deposit rate to 1 percent -- an historic low for the country -- from 1.25 percent. Only one economist expects the bank to do nothing.
Much like in neighboring Sweden, Norway is trying to balance an overheated property market with the needs of an export sector that fears a strong krone. Over the past three months, Norway’s krone has outperformed seven of the 10 currencies tracked in the Bloomberg Correlation-Weighted Index. Only the euro and the Swiss franc have appreciated more.
Low oil prices and a strong krone are already taking their toll. Statoil ASA, Norway’s biggest crude producer, said this week it will cut as many as 2,000 more jobs by the end of 2016 to adjust to the new market. Lost oil-industry jobs have pushed Norway’s jobless rate to its highest level since at least 2006.
The last time Norges Bank Governor Oeystein Olsen delivered a rate cut was in December, when he unexpectedly lowered the deposit rate by a quarter point after oil dropped to about $63 a barrel.
While Norway isn’t battling deflation -- underlying consumer prices rose 2.4 percent in May -- its efforts to push an expansionary monetary policy are being drowned out by bigger stimulus packages in the euro zone and Sweden.
A government proposal to tighten mortgage lending rules may free the central bank to ease policy further as others deal with the country’s overheated housing market.
But “the effects are still very uncertain,” said Kyrre Aamdal, a senior economist at DNB ASA, Norway’s biggest bank. “The central bank will want to see some impact in the market before they change their” assessment, he said.