Norway’s central bank proved on Thursday it’s more than happy to see investors dump its currency.
After cutting rates and signaling there’s more easing to come, Governor Oeystein Olsen watched the Norwegian krone plunge about 2 percent against the euro.
“The movements we have seen in the currency markets are not dramatic at all,” Olsen said. “The reactions in the market make sense, based on our judgments of the economy.”
The bank cut its main rate to an historic low of 1 percent on Thursday to avoid a recession in western Europe’s biggest oil producer. It then surprised by signaling another cut may come as soon as September. The rate path implies between 50 percent and 70 percent chance of a cut in the “autumn,” “perhaps even more than 60 percent,” Olsen said Friday in an interview after a speech in Oslo.
As policy makers struggle to adjust to last year’s plunge in the price of oil, the bank is trying to ensure that a strong krone doesn’t add to exporters’ misery.
“We should be, and we seek to be, cool and patient in regards to moves in the currency market,” Olsen said.
The krone gained 0.5 percent to 8.8159 per euro as of 9:43 a.m. in Oslo. It plunged 2 percent yesterday.
Olsen in December unexpectedly delivered a quarter-point rate cut after crude dropped to about $63 a barrel and signaled a 50 percent chance for another reduction. While that sent the krone down to its lowest since 2009, the currency subsequently recovered. The krone is still down more than 20 percent against the dollar and about 6 percent versus the euro over the past year.
The central bank on Thursday cut its forecast for mainland economic growth. It also sees petroleum investments falling 15 percent this year and 5 percent next year. The bank had earlier predicted a 10 percent decline for 2016.
Olsen remains concerned about threats from Norway’s hot housing market and high private debt levels and said despite cutting rates, he is still “leaning against the wind.”
“To be concrete: If we had neglected it, that would have implied an even lower path,” he said.