It’s been costing Norwegians more than 14 of their kroner to buy just one British pound this week, more than NOK 12 to buy a euro and more than NOK 11 to buy a US dollar. That’s further boosting the prices of imported items, not least summer trips abroad, and fueling speculation that interest rates may be raised, too, instead of being cut.
The krone headed into the weekend at its weakest level since the early days of the pandemic in 2020, and is now much weaker than its historically strong levels prior to the oil price collapse in 2014. A US dollar used to cost less than NOK 8, even as little as NOK 6, and the British pound hasn’t been so expensive since 1973.
“There is no single factor behind this,” Olav Chen, an economist and funds manager at insurance firm Storebrand, told newspaper Dagens Næringsliv (DN) on Friday. He thinks the krone is caught in a “perfect storm,” pounded by stock market declines, speculation, an uneasy world and changes in the oil economy.
Chen doesn’t think Norwegians can expect to see a return to the currency exchange rates that were common prior to 2013. That’s when the krone was strengthened by China’s huge demand for oil as its economy grew. “Those days are gone,” Chen told newspaper Dagsavisen, as he responded to local media clamouring for comment over the past few days. “Norway had lots of good luck for a long time,” he added, and may now need to prepare for tougher times.
“We’re struggling to find a common understanding of why the krone is so weak,” Chen said, referring to all the discussion and debate among economists and money managers at present. They’ve been baffled for a long time, and Chen thinks that’s part of the problem, since Norway is “a small, open economy.” It’s sensitive to higher purchasing prices, and a third of Norwegian consumption is affected by the currency exchange rate. Norwegian households also have traditionally high debt levels, and are vulnerable to interest rate hikes.
While some economists claim Norway’s economy is still fueled by its oil and gas exports, others note that the krone hasn’t been reacting as much to the rise and fall of oil prices. It was common for the krone to jump when oil prices did, for example, but that’s not necessarily the case now.
It all leaves Norway’s central bank with a huge dilemma. After a quick succession of interest rates hikes from arguably artificially low levels during the pandemic (zero for many months), many thought Norges Bank would lower rates sometime this fall. Now there’s speculation that not only may the bank opt against an interest rate cut, its monetary policy committee may raise rates again.
Chen thinks that may only temporarily boost the krone, and worse, leave Norwegian households with even higher costs. That can also set of off what Chen calls a “wage-price spiral.”
Expectations of lower interest rates, meanwhile, are being replaced by speculation over an interest rate hike. That would also hurt the housing market and be “relatively shocking,” the chief executive of real estate brokerage Privatmegleren, Grethe Meier, told DN on Saturday. “That could create imbalance and put the brakes on the ability and willingness of home buyers.”
Professor emeritus and economist Knut Anton Mork, however, thinks the central bank must raise interest rates to halt a wage-price-exchange rate spiral. He thinks international political drama is “clearly having an effect on small currencies” like Norway and Sweden. The weak Norwegian krone sends a warning to Norwegian authorities, Mork told DN, and may also be a result of controversial tax policy, along with reversals of mergers involving local governments, the courts and police. Mork thinks it’s becoming more clear that the Norwegian economy is no longer one of the strongest in the world, and that Norwegian politicians are viewed as wavering on important issues.
‘Don’t panic’
DN editorialized last week that a better understanding of the krone’s weakness is needed, especially since inflation is down to 2.6 percent and unemployment is low. The tourism industry benefits from the weak krone, as do Norway’s large export firms since they get far more kroner for their sales abroad, but a weak currency isn’t something to brag about.
Some Norwegians are defying the weak krone and traveling abroad anyway. Economist Steinar Juel urged against any “krone-panic,” arguing that Norway’s currency may be at a better long-term level than it was several years ago.
“The weakness of the krone has been a major theme now during the summer holidays,” he wrote in a commentary in DN on Saturday. “It’s no worse than simply being back where it was in April and May, and late last year. It’s far from any collapse.”
NewsinEnglish.no/Nina Berglund
