Norway’s krone strengthened on speculation the central bank will signal this week that interest rates will be kept unchanged for the remainder of the year.
The krone gained to 7.4793 per euro from 7.4805 on March 9, as of 11:50 a.m. in Oslo, after paring an earlier loss. It was little changed at 5.7021 per dollar.
“A decision to keep rates on hold should support investors’ appetite for the krone,” Bjoern-Roger Wilhelmsen, chief currency strategist at Swedbank First Securities, said in a note to clients.
The krone touched a nine-year high against the euro this month, prompting verbal interventions from the central bank and the government. In part to relieve pressure on the central bank, government spending this year and next will be “significantly” below the limit of 4 percent of Norway’s $600 billion sovereign- wealth fund, Finance Minister Sigbjoern Johnsen said yesterday after presenting the budget framework for next year.
The central bank will announce its next rate decision on March 14, after cutting rates by half a percentage point to 1.75 percent in December. It will lower its predicted rate path by as much as 0.8 percentage point, according to First Securities. In the central bank’s last forecast from October it predicted a rate of almost 2.5 percent by year end.
While Norway’s oil wealth has protected it from Europe’s debt crisis, the riches risk harming competitiveness. The central bank has supported demand as it seeks to track rates in Europe to stem excessive krone gains. Johnsen said yesterday that fiscal policy will also address the exchange rate.
The krone’s strength “is an important concern when we set the overall framework for 2013,” Johnsen said. “It’s important we hold back with oil money spending, because there’s also an outlook for continued good growth in the economy.”
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