High interest rates unlikely to strengthen weak Norwegian krone 

Higher interest rates are unlikely to help boost a weak krone, finance experts have said after Norway’s central bank raised the key policy rate. 

Pictured is a jar of money.
Higher interest rates are unlikely to help strengthen a weak Norwegian krone. Pictured is a jar of money. Photo by Josh Appel on Unsplash

Lower interest rates have been pointed to as a factor, contributing to the Norwegian krone is at its weakest level against the euro, dollar and pound for several years. 

Essentially, interest rates in Norway are lower than in other countries, which makes the krone less attractive to investors. 

READ ALSO: What is making the Norwegian krone so weak?

On Thursday, Norges Bank raised the key policy rate to three percent, and analysts forecast that the central bank’s interest rate will be between 3.5 and 3.75 percent by the autumn. 

While low-interest rates have contributed to a week krone, the higher interest rates are unlikely to do much to help strengthen Norway’s ailing currency, financial experts have said. 

“I do not believe that Norges Bank, through the interest rate differential, will be able to secure a stronger krone exchange rate over time,” Kjetil Martinsen, the chief economist for Swedbank, told business news publication Finansavisen

Harald Magnus Andreassen, the chief economist at SpareBank 1 Markets, told the same publication that the bank would need to raise its rates much higher to tip interest rates in favour of the krone. 

“If Norges Bank were to save inflation by strengthening the krone exchange rate, they would have to raise interest rates by 150-200 basis points more than they have in the interest rate range now. We are therefore talking about a policy interest rate of over five percent, and it is not certain that it would even help,” he explained. 

He added that the world going green made it harder for the currencies of countries whose economies revolve around the sale of commodities. For example, Norway itself is heavily dependent on oil and gas sales. Historically, as oil prices have risen and fallen, so has the krone.

READ MORE: How long will the Norwegian krone remain weak?

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What Norway’s weak krone means if you are travelling this summer 

Norway’s krone is down considerably to almost all major currencies. This affects how cheap or expensive your trip in or out of Norway will be this summer. 

What Norway’s weak krone means if you are travelling this summer 

Compared to 30 other major currencies, the krone has weakened against all except the Argentine peso and the South African rand, according to an overview of the “expanded major” currencies from Bloomberg. 

The Norwegian krone is considerably weaker against the euro compared to a year ago. The cost of a US Dollar or UK pound has become over a krone more expensive since February. 

Norway’s krone is also down to the Swedish krona and Danish krone. The Danish krone is fixed to the euro, so it is performing well against Norway’s currency. Meanwhile, the Swedish krone has become more valuable than the Norwegian krone. 

Low gas prices, higher interest rates in other countries than in Norway, and uncertainty in the world financial markets have all contributed to Norway’s weak krone. The weak krone will have a massive impact on anyone with travel plans this summer. 

If you travel outside Norway, you can expect your travels to be considerably more expensive. 

“This year the holiday will be expensive. Plan your summer on the basis that you will get less for your money this year than you did last year – much less,” Cecilie Tventenstrand, savings and consumer economist for Storebrand, recently told Norwegian broadcaster TV 2

If you are travelling from Norway and your main income is paid in krone, you can expect everything to be more expensive due to the exchange rates. 

Insurance firm Fremtid has recently issued a reminder that cancellations due to the weak krone or low money in the account are not covered by their policies. 

“If you just change your mind, you will not get any money back on the travel insurance. Then you have to contact the travel operator and investigate whether you can get money back,” Therese Hofstad- Nielsen said in a recent press release. 

Consumer economist Tvetenstrand said that travellers from Norway to other countries should try to pay with a card this summer. 

“Always pay in foreign currency. If you pay in Norwegian currency, you pay a higher exchange rate. Always also pay by card, preferably a credit card – just remember to transfer money to it straight away. The exchange fee is often higher at the ATM,” she said. 

Things are a lot more optimistic if you are travelling to Norway this summer (unless you are paying in Argentine pesos or South African rand). 

You can expect better value for your money as your currency will likely strengthen against the Norwegian krone. This means a cheaper trip to one of the most expensive countries in Europe. 

One way to take advantage of the weak krone is to consider a bank account which doesn’t charge foreign transaction fees or allows you to transfer your currency into krone. This is much more helpful than exchanging for cash, as cash isn’t widely accepted in Norway. 

Therefore if you bring a large amount of cash, you could end up stuck with it and lose out when you exchange your leftover kroner back for your preferred currency. 

READ MORE: How tourists in Norway can take advantage of the weak krone to save money

One plus (or negative) is that the krone is unlikely to see a drastic strengthening anytime soon. Dane Cekov, an analyst with the bank Nordea, told E24 that the krone was likely to continue on its current trajectory. 

“We believe that the roller coaster ride will continue for the Norwegian krone through the summer,” he said. 

As an example, he predicted that one euro could cost as much as 12.3 kroner or more during the summer. 

Meanwhile, Nils Knudsen, the currency strategist from Handelsbanken, told TV 2 that the krone would struggle until the global economy picks up. 

“It is connected with the fact that we have not received any particularly good news from the global economy. Therefore, we need to have some good news before we can say that the krone can recover in the short term,” he explained.