Negative ECB Rate Triggers Advance in Scandinavian Currencies

The Swedish and Norwegian currencies gained against the euro after the European Central Bank cut its deposit rates to below zero and signaled further measures.

Sweden’s currency rose as much as 0.2 percent to 9.0147 per euro, while the Norwegian krone climbed as much as 0.4 percent to 8.1329, the biggest move since May 16.

The ECB cut its deposit rate below zero and said it would announce further measures later today as policy makers try to counter the prospect of deflation in the world’s second-largest economy. The deposit rate was lowered to minus 0.10 percent from zero. They also lowered the benchmark rate to 0.15 percent from 0.25 percent.

Inflation in the euro area slowed to 0.5 percent in May, matching the lowest in more than four years as the bloc slowly recovers from a record-long recession.

“Looking further ahead we still see the Norwegian krone lower, but we are fairly neutral to the Swedish krona,” Paul Robson, senior currency strategist at RBS Plc, said before the ECB’s decision. He doesn’t see any lasting affect from negative rates on the Swedish and Norwegian currencies.

Sweden’s krona has fallen about 2.2 percent this year against the euro, the worst performer among major currencies tracked by Bloomberg. The Riksbank is seen cutting its benchmark rate again in July, to 0.5 percent, as policy makers battle to avoid deflation from taking hold in the largest Nordic economy.

Norway’s krone has risen about 2 percent against the euro this year. The central bank, which has kept its key rate at 1.5 percent since March 2012, is trying to spur growth in Scandinavia’s richest nation as oil and gas investment slows. It also expects to raise rates in the “summer” of 2015.

Norges Bank releases its next monetary policy report and rate decision on June 19.

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