On Thursday afternoon, buying one euro cost NOK 10.82. The last time the koruna was this weak against the euro was on December 21, 2020, according to data from Infront.
This means that Norwegians who are currently on holiday in euro countries, including classic southern countries such as Spain, France, Italy and Greece, can have a historically expensive summer vacation, he writes. The online newspaper.
The koruna recovered slightly on Friday and now costs NOK 10.78 to one euro. A weaker krone makes Norwegian goods more competitive abroad, but we are hit by higher import prices and, for example, more expensive holidays abroad.
Nordea currency analyst Dane Chekov tells Nettavisen that there are two important explanations for the weakening krona.
– Now, at the beginning of the year, there is bad sentiment in the stock market. Yesterday we received the report from the US central bank (Federal Reserve, Fed for short), in which several members clearly stated that they are not satisfied with how the market interprets their actions and what is being priced into interest rate expectations.
The sentiment in the market is the general mood. Where, among other things, psychology and interpretations influence. When stocks go up, it is often said that there is positive market sentiment, and the opposite when they go down.
One explanation is therefore that the crown is exposed to fluctuations in risk appetite.
– The fact that central banks have been hawkish and have talked about raising interest rates and lowering equities usually leads to a weaker krone.
Hawk means that the central bank or its members believe that interest rates must be high to keep inflation low.
Warm winter
The second explanation is related to the mild winter climate. Since Europe has had a good start to the year in terms of heat, there is no need to light fires as much as when it is cold.
– This is one of the warmest winters Europe has had in many decades. So you use less gas for heating than usual, which drives down the price of gas, which in turn drives down the exchange rate of the krona.
When oil and gas prices are high, oil companies have to buy kroner to pay the government. The amount of crown purchases increases in line with their income.
Lower gas and oil prices mean fewer koruna purchases, which in turn affects the koruna exchange rate.
It makes work harder for Norges Bank
– Doesn’t a weakening krone mean that imported price inflation is rising?
– Yes. And that makes Norges Bank’s job more difficult. A weaker koruna means higher growth in imported prices and about 33% of the underlying price growth is driven by what we import.
And rising prices are among the things Norges Bank looks at when considering whether the interest rate should be raised or kept unchanged. The consumer price index is used to measure inflation, which is when the prices of goods and services rise over time.
What measures the so-called increase in the underlying price is the CPI-JAE. It is a measure of the growth of consumer prices adjusted for tax changes and excluding energy products.
– The weaker the krone, the more difficult Norges Bank’s goal of reducing inflation to two percent becomes, Chekov explains.
It can contribute to higher interest rate hikes
– Will it therefore be easier for the central bank to raise the interest rate?
– You can say that if they hadn’t raised the interest rate so much, we would have had a big risk that the kroon exchange rate would have been even weaker.
Norges Bank is however aware that their job becomes more complicated with a weakened krone. They wrote this in the December Monetary Policy Report, which is an economic report released four times a year by the executive board of Norges Bank.
– They have seen that interest rate differentials with other countries are smaller. Norges Bank raised the interest rate in a short time, but compared to the US where they raised the interest rate from zero to 4.5% in one year, the Norwegian central bank raised it from 0.5 to 2. 75 last year.
– The exchange rate for the US central bank is higher, which is more positive for the dollar.
Chekov explains that Norges Bank has pointed out that one of the main reasons they are likely to continue raising interest rates is because the krona exchange rate may remain weak, which makes what we import more expensive.
– At Nordea, we believe that the interest rate should be raised twice, he says.
