Norges Bank Unexpectedly Cuts Interest Rates, Krone Slumps

The Norwegian krone slumped against the US dollar yesterday and remained weak today as the nation’s central bank cut its key interest rate, surprising market participants and making them shun the Norwegian currency. Despite that, the krone was higher against the euro today.
Norges Bank decreased its main interest rate by 25 basis points to 1.50 percent. Bank’s Governor Oeystein Olsen explained the reasons behind the cut:

The continuing downturn abroad and the strong krone are contributing to keeping inflation low and are weighing on growth in Norway. Against this background, the Executive Board has decided to reduce the key policy rate.

Moreover, he said that “the current outlook suggests that the key policy rate may remain low longer than projected earlier”. Norway policy makers were talking about the negative effect of the strong currency for some time, but market participants was surprised by the decision anyway.
Analysts believe that the krone will be depreciating for a short term. Over medium term, the currency is expected to rise further, especially against the euro.
USD/NOK was at 5.8244 as of 5:54 GMT today after it jumped from 5.6967 to 5.8229 yesterday. The currency pair reached the high of 5.8377 earlier today — the highest since October 7. EUR/NOK was down from 7.5906 to 7.5855.

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