Norwegian Krone falls below parity against Swedish Krona on surprise rate cut

Norwegian central bank surprised market today with a rate cut of 25 basis points and pushed Krone sharply down against all currencies. Since market was expecting policy hold, reaction has been very volatile. Key policy rates were reduced to 0.75% and next meeting is scheduled on November 5th.

Krone has sunk below parity against its Scandinavian counterpart Krona after the decision, currently trading at 0.993.

Krone is down 2.15% against dollar and more than 2.3% against Euro so far.

Why the rate cut?

• Norway's economy is overall in good shape growing 2.2% annualized rate however recent data has been pointing to slowdown. GDP shrank -0.1% in second quarter, after growing just by 0.1% in the first.
• Unemployment rate still at low of 4.3%, however it has jumped from 3.2% in early 2014 and economist suggest further deterioration is possible.
• Major headwinds for the economy has been coming from lower oil price, which is a major export product of Norway.
• With oil price drop current account surplus has shrunk to 8.5% of GDP from 18% of GDP in 2009.

Central bank is likely to provide further rate cuts if oil price stays longer at lows.