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Norway’s Krone Advances as Central Bank Says Key Rate May Rise
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By Bo Nielsen

Aug. 12 (Bloomberg) -- Norway’s krone jumped the most in ten weeks against the euro after the central bank said it may need to increase its key interest rate earlier than projected.

The Norwegian economy may not slow as sharply as it predicted in June, the Oslo-based Norges Bank said in a statement on its website. It kept the benchmark deposit rate at a record low 1.25 percent today as forecast by all 12 economists surveyed by Bloomberg.

“We are surprised that the bank is already saying that it may lift rates,” said Camilla Viland, a currency strategist in Oslo for DnB NOR ASA, Norway’s biggest bank. “This is positive for the krone.”

The krone rose 1.5 percent to 8.8944 per euro as of 2:42 p.m. in Oslo, the most since June 1, and 1.6 percent to 6.1386 per dollar. The currency will trade at 8.8 per euro in three months and 8.3 in a year, Viland said.

“Production and employment may slow less sharply than expected,” the central bank said. “Should these developments continue, it may be appropriate to increase the interest rate earlier than projected.”

The bank said in June rates would stay on hold until the middle of next year. It said today it would maintain its target for the key rate between 0.75 percent and 1.75 percent until its Oct. 28 meeting.

“Today’s hawkish comments put the krone bulls back in the driver’s seat,” Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co., wrote in a note after the decision.

To contact the reporter on this story: Bo Nielsen in Copenhagen at [e-mail]