Nordic Currencies: Norway's Krone Gains After Inflation Report

By Bo Nielsen

Sept. 10 (Bloomberg) -- Norway's krone rose against the dollar after a government report showed underlying inflation held near a 7 1/2-year high in August, keeping pressure on the central bank to raise interest rates.

The krone snapped a nine-day drop versus the U.S. currency after Statistics Norway said the inflation rate, excluding energy costs and taxes, fell to 2.8 percent, from 2.9 percent in July. Sweden's krona also rose for the first time in 10 days against the dollar, after the longest run of declines in 12 1/2 years.

Norway's krone advanced 0.2 percent to 5.6846 per dollar by 10:15 a.m. in Oslo, from 5.6971 yesterday. It was also at 8.0528 per euro, from 8.0510.

Norges Bank, which raised its key interest rate twice this year, to 5.75 percent, a 5 1/2-year high, indicated in June it may deliver one more increase by December to curb inflation. The next policy meeting is on Sept. 24.

In other trading, the Swedish currency climbed 0.2 percent to 6.7290 per dollar, ending the longest losing run since January 1996. It was also at 9.5270 per euro, from 9.5289 yesterday.

The krona was buoyed as Swedish industrial production unexpectedly advanced for a second month in July, keeping pressure on the Riksbank to increase interest rates.

Production climbed an adjusted 1.2 percent from June, when it rose a revised 0.8 percent, Stockholm-based Statistics Sweden said today. Output was expected to fall 0.3 percent, according to the median estimate of eight analysts surveyed by Bloomberg.

``We'll always get small corrections in the krona but the currency is weakening in the longer run,'' said John Hydeskov, a senior analyst at Danske Bank A/S, Denmark's biggest bank.

The Riksbank last week lifted its main rate to 4.75 percent and said growth and inflation will slow in Scandinavia's largest economy, signaling its next move in rates will probably be a reduction.

Nordic government bonds fell, with the yield on Sweden's 5.25 percent note due in March 2011 gaining 1 basis point to 4.22 percent. The yield on Norway's 6 percent bond maturing May 2011 climbed 2 basis points to 5.05 percent, according to Danske Bank prices. Yields move inversely to bond prices.

To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net