Norwegian central bank Governor Oeystein Olsen said he has no specific target for the krone even as he acknowledged policy makers were aware they would trigger a slump by yesterday lowering their interest rate outlook.
“We were aware of the fact that our decision would have an impact in that direction based on the fact that our interest rate path was below the corresponding money market path,” Olsen said today at the Oslo-based Foreign Press Association. While the krone is an important factor “we have no target for the exchange rate,” he said.
The Norwegian currency tumbled against the euro after Olsen yesterday kept the benchmark rate at 1.5 percent and signaled an increased chance for a cut this year. The rate will remain below the current level until the fourth quarter of 2014, he said.
After the announcement, the krone fell 3.3 percent to 7.9388 per euro, the weakest since May 2011. The currency has slid 7 percent this year versus the euro as the bank also in March warned rates may be cut. It’s still up 19 percent since the end of 2008 after emerging as haven during Europe’s debt turmoil.
The krone gained 0.2 percent to 7.917 per euro as of 2:53 p.m. in Oslo today.
Olsen has kept the rate unchanged for more than a year while saying the central bank is ready to act to prevent krone gains from undermining its inflation target and the economy. Norges Bank, which targets 2.5 percent inflation, said underlying inflation will be below 2 percent through 2016.
Norway’s $480 billion economy is starting to suffer from the fallout of the euro area’s shrinking economy, pushing unemployment to the highest since May 2010 as companies also struggle with a surging krone and manufacturing labor costs that are nearly 70 percent higher than the European Union average.
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