Norwegian krone to remain weak in near term as oil prices unlikely to rebound strongly until H2

In March, the Norges Bank cut its interest rate to a historic low of 0.5% from 0.75% due to the Norwegian economy’s weaker growth prospect. Intentions for investment in the country have been greatly reduced and are not expected to markedly rebound in spite of a projected improvement in oil prices, according to Lloyds Bank. This implies that the Norwegian economy is likely to experience a sluggish growth for a longer period of time, noted Lloyds Bank. Under such circumstances, the central bank is expected to keep its dovish bias in the coming year, added Lloyds Bank.

Admittedly, Governor Olesen has stated that interest rates are more likely to be lowered further in 2016 than not. Even if the recent rebound in oil prices has eased the near-term pressure in the Norges Bank to loosen policy, a stronger rebound in prices is not expected until H2 2016, according to Lloyds Bank. Therefore, even if the NOK is likely to recover later in 2016, the Norwegian krone is expected to continue to be weak in the near term.

“We forecast EUR/NOK ending 2016 at 9.0”, added Lloyds Bank.