Last week, Norges Bank left interest rates untouched at its meeting while projecting the first rates hike to likely be in March 2014. The Norwegian Central Bank said: “The first increase in the key policy rate is now projected to take place in spring 2014.” “The Executive Board was of the view that it would now be appropriate to set the key policy rate so that it takes somewhat longer than earlier for inflation to move back to the target of 2.5%.” However, Norges Bank has now adopted a really low inflation forecast which it expects to make the NOK strong going forward.
Already, data from the weekly trading flow shows speculators have been heavily selling the Krone in the last four weeks. This means that EURNOK may peak within a few days or weeks before moving lower in the medium term. Meanwhile, Europe is bracing for fresh political and economic turbulence as outcry in Cyprus intensifies due to an unprecedented bank deposit levy being proposed.
President Nicos Anastasiades of Cyprus finally yielded to pressure from Euro-area finance ministers to raise $7.6 billion (5.8 billion euros) through taxes on every Cypriot’s bank savings; in exchange for loan packages. The levy at the moment is proposed at 6.75% of any account balance up to €100,000; then from 9.9% to 13% above that figure.
According to the lenders, the amount generated will reduce the country’s bailout fund from about €17 billion down to €10 billion. This ill-timed government policy is targeted at every bank account owner in Cyprus and is now seriously threatening to derail the country’s fiscal and economic recovery.
The chart below shows that EURNOK has just experienced a sharp market-open drop which will correct before continuing the downward trend. More so if the situation in Cyprus does not improve.
