December 4, 2022

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- Still a Barrier - E24

– Still a Barrier – E24

DNB’s currency expert believes Norges Bank should turn to billions of kroner per day sales later this year, as the central bank is still using outdated oil and gas price estimates.

The krone exchange rate can be affected by significant changes in krone transactions at Norges Bank, even if they fade over time.

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Norges Bank will not buy NOK from the market in February, after buying NOK 250 million per day in January, According to a message from the Central Bank. At the same time last year, NOK 1.7 billion were purchased daily.

The Bank of Norway has long been exchanging currencies on behalf of the central government, so that foreign currency oil revenues from the central government’s budget can be used.

In advance, both SEB and DNB markets expected to cut kr purchases to zero in February.

This is still a hindrance if the goal is to facilitate purchases throughout the year, says currency analyst Magne Østnor at DNB Markets to E24.

He confirms that a big turnaround is imminent when the Bank of Norway starts using estimates that take into account the sharp rise in oil and gas prices from the second half of last year.

Ostnor then thinks Norges Bank will have to sell kronor more than 1 billion kroner per day on average over the course of the year. The longer they wait for the krone sales to start, the more sales they have to sell per day later in the year.

The last time Norges Bank sold its kroner was in October 2013.

The rise in oil prices leads to a decrease in the demand for the krona

In recent months, krone purchases have been sharply reduced.

The cuts come after the rise in oil and gas prices, which also led to a rise in oil tax revenues, as well as the cancellation of Corona measures, based on new calculations in the state budget for next year.

As a result of the Corona crisis, the central bank increased its kroner purchases to a new record of 2.5 billion Norwegian kroner per day in July 2020, in order to transfer funds to the government and cover the sharply increased use of oil money.

Magne Østnor, currency analyst at DNB Markets, expects a big change when Norges Bank adopts the updated estimates.

The tailwind of oil prices and the headwind of stock market turmoil

Norges Bank’s krone transactions have little effect on the krone exchange rate over time, as they are balanced, among other things, by oil company exchanges to pay the oil tax. But in the short term, major changes can strengthen the crohn’s movements.

– The krone is likely to continue to suffer from tailwinds from the use of oil money and higher oil and gas prices, while market turmoil regarding monetary policy tightening (high interest rates, daily magazine) pulls in the opposite direction. Plus, we’re seeing a number of mainland Norwegian trading firms buy kroners, so it’s perfectly balanced, says Ostenor.

So it does not look significantly differently at the krone exchange rate after today’s announcement, and expects one euro to cost 10.00 in three months and 10.20 in one year.

The value of the krone fluctuated significantly at the beginning of the year. The price of one euro ranged between 10.23 and 9.90 in line with fluctuations in oil prices and turbulent stock markets.

On Monday morning, the krone was at 10.00 against the euro and 8.96 against the dollar, and there is a slight movement that can be traced after the Norges Bank announcement.

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