The Euro to Norwegian Krone (EUR/NOK) exchange rate tumbled to its lowest level in 3-days on Thursday after the Norwegian central bank took economists by surprise after leaving interest rates unchanged.
The Euro to Norwegian Krone (EUR/NOK) exchange rate fell to a session low of 8.5954
The Norges bank left interest rates on hold at 1.25%, defying economist forecasts that the bank would make another cut to 1%.
Despite not cutting rates, the bank did suggest that it was prepared to introduce more monetary easing measures in order to protect the Scandinavian nation’s economy from tumbling oil prices. Following the announcement the Krone surged by more than 3%.
In December, the bank took economists by surprise by making an unexpected 25 basis point cut to interest rates. The action was in response to the steep decline in oil prices.
As Norway creates a fifth of its annual output from the energy sector, limiting the negative effects of falling prices was a necessity.
‘If economic developments ahead are broadly in line with that projected, there are prospects for a reduction in the key policy rate. The key policy rate was reduced in December to counter the risk of a pronounced downturn in the Norwegian economy because of lower oil prices. So far the effects on the real economy have been relatively small, and house prices are still rising at a fast pace,’ said Norge Bank governor Oeystein Olsen.
Despite holding rates in today’s session economists are forecasting that the Norwegian central bank will make further rates cuts over the coming months as the impact of falling oil prices on the national economy is expected to be more pronounced.
‘A rate cut remains likely at the next meeting. Weakness in the economy should be more evident by then and this is likely to prompt a reduction in the policy rate to just 1%,’ said Colin Bermingham, an economist from BNP Paribas.
Greece concerns weigh on Euro
The Euro meanwhile fell against the majority of its most traded peers as the European Central Bank’s (ECB) quantitative easing programme makes its presence felt and as the standoff between Greece and its creditors in the wider European Union weighs.
Greek Prime Minister Alexis Tsipras has vowed to ‘reclaim the dignity of the nation’ is heading to Brussels for a European Union summit.
Time for a deal to be reached between Athens and its creditors is running out as the nation’s money dries up.