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Monday, May 23, 2022

Central bank buys even weaker kroner

A decision by Norway’s central bank to buy more of the country’s own currency has raised some eyebrows. An analyst at Norway’s biggest bank thinks it looks like Norges Bank is trying to prop up the sagging krone.

Norway’s krone hasn’t been as weak as it is now for many years. On Monday it cost NOK 9.12 to buy one US dollar. PHOTO: newsinenglish.no

By midday Monday, it cost NOK 9.12 to buy one US dollar. That was up from already historically weak levels that have baffled analysts for months: Norway’s economy remains strong, unemployment is low and the prices of the country’s biggest export products (oil and seafood) have recovered and hit record levels respectively.

That makes it difficult to understand why the krone has kept weakening, with most analysts linking it to the US president’s trade war with China and overall uncertainty in markets around the world.

Norges Bank referred to various mechanisms taking effect when it issued a press release Friday about its planned foreign exchange transactions for September (external link to the central bank’s own website). Newspaper Dagens Næringsliv (DN) reported that the central bank is increasing its daily purchases of the krone from NOK 500 million to NOK 700 million.

That left Magne Østnor, a foreign exchange strategist at DNB Markets, shaking his head. He wrote in a report cited by DN that the latest changes in Norges Bank‘s currency purchases “raise questions” over whether Norges Bank is stepping in to offset the latest weakness in the krone.

Norges Bank is responsible, on behalf of the country’s finance ministry, to exchange kroner and often buys the krone when it’s weak and sells when it’s strong. Many. meanwhile, still view the price of a barrel of Norway’s North Sea crude oil weak (even though it’s nearly triple the level when prices bottomed out a few years ago) and that generally weakens the krone. When the oil price is low, Norges Bank needs to buy kroner because of the so-called “petroleum fund mechanism” tied to the state’s direct financial interest in oil (SDFI).

Østnor thinks that can make Norway comparable to currency exchange regimes known for propping up their currencies like China and Singapore. Norwegians, meanwhile, face higher costs when abroad.

newsinenglish.no/Nina Berglund



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