The Norwegian crown slumped to a 13-year low against the dollar on Thursday, after the central bank surprisingly cut interest rates to boost growth in an economy struggling with falling prices of oil, its main export.

The Norwegian currency fell to 9.4699 crowns per euro after the rate decision, its weakest since August 27, having traded at around 9.2952 crowns beforehand. Against the dollar, the currency hit a 13-year low of 8.4593 crowns, down nearly 2 per cent on the day, according to Reuters data.

“We expect the crown to weaken to 9.50 crowns against the euro,’’ said Richard Falkenhall, currency strategist at SEB, a leading Nordic bank. “Norway's economy is still struggling and there is still room for monetary policy to be loosened further.’’

In June, the Norges Bank had cut rates to a record low of 1.00 per cent and said there was a probability of up to 70 per cent of another cut in September if the economy developed as expected.

Since then domestic growth has weakened as a result of falling oil industry investments, but a weaker currency, higher inflation and a still strong housing market led many to expect a delay in the next cut.

But Norway’s central bank surprised markets by cutting its key policy rate to 0.75 per cent on Thursday and flagged downside risks to the economy.

The euro, meanwhile, held on to its recent gains after the head of the European Central Bank downplayed the need for further monetary stimulus any time soon. The German IFO survey for September beat expectations, but the euro failed to get much impetus.

The euro was slightly higher against the dollar at $1.1191 staying away from Wednesday’s low of $1.1105, which was its lowest since September 4.

“The euro is still a carry currency, so its gains might not last,’’ said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

“Some people think that anytime the euro rises, it's a good time to go short, to build short positions," he said.

ECB President Mario Draghi said while the risks to Europe’s inflation and growth outlook have increased due to the emerging market slowdown, the bank would need more time before deciding to take any fresh action.

Markets have taken the view that the other major central banks were under growing pressure to do more after the Federal Reserve delayed a hike in interest rates last week due in part to a soft global outlook. Therefore, Draghi’s comments disappointed some euro bears.

The key focus for investors will now be a speech by Fed Chair Janet Yellen. She is due to speak on ‘Inflation Dynamics and Monetary Policy’ at 2100 GMT.

Related Topics
comment COMMENT NOW