Kronen rykker fra krona

Kronen’s value has dropped significantly against the Swedish krona, with 110 Norwegian kroner once buying a Swedish hundrelapp, now costing just 96. Bloomberg reports that no G10 currency has weakened more than the Swedish krona this year, while none has strengthened more than the Norwegian. Storebrand Asset Management’s Olav Chen attributes this to the interest rate differential between Norway and Sweden, along with high energy prices.

The Swedish central bank's interest rate is 1.75%, compared to Norway's 4.25%. Chen notes that Sweden's economy has performed worse than Norway's, with slower wage growth, lower household incomes, and overall poorer performance. Central banks aim to control inflation through interest rates, raising rates generally reduces spending and dampening inflation.

Chen believes the Swedish Riksbank cannot maintain its low interest rate permanently due to the combination of low interest, exchange rate, and inflation factors. He points out that Norway imports coffee, which becomes more expensive when the krona weakens, contributing to imported inflation. While markets have already priced in a rate hike from the Swedish central bank in November, Chen believes Norwegians should not celebrate a stronger krona, as it benefits those without loans but harms export industries due to decreased competitiveness.

Even though the krona has strengthened significantly this year, Chen still expects the Norwegian central bank to raise interest rates at the next meeting. He acknowledges that high inflation in Norway has led to a price spiral, with wages and prices rising together, which is the central bank's worst nightmare.