Norges Bank's surprise interest rate cut of 0.25% to 1.5% today signals a possible war with currency speculators, said Handelsbanken Capital Markets.
Handelsbanken warned that the rate change meant that the bank had become “less predictable”, which theatened its authority in speaking on monetary policy matters. This is especially because of recent comments from the bank’s governor himself, Øystein Olsen, who pointed to the risks of higher wage inflation should the bank lower the cost of money in the Norwegian economy.
“The ever changing communication from Norges Bank has in our view made it considerably more difficult to interpret what Norges Bank really means and thereby predict their next move.”
“We furthermore worry that Norges Bank now may have involved itself in a dangerous game against FX speculators. Today’s move may easily be read as a response to NOK strengthening, which, in turn, may work as an invitation to speculators to start playing against the central bank. The previous governor was very careful to avoid such games. His successor seems to take more risks.”
Data published by Norges Bank today shows the effect of the cut on FX rates, with sharp falls against all currencies of key trading partners.
Source: Norges Bank, rate as at 14.35 local time on 14 March 2012.