Nordic Currencies: Norway's Krone Rises as Inflation Quickens

By Bo Nielsen

Nov. 10 (Bloomberg) -- Norway's krone snapped a four-day drop against the euro after a government report showed the inflation rate unexpectedly rose to the highest level since at least 1995, reducing the need for the central bank to lower interest rates. The Swedish krona climbed as stocks rallied.

The Norwegian krone also strengthened versus the dollar as the price of oil, the country's biggest export earner, advanced for a second day amid speculation China's $586 billion economic- stimulus package and measures by the Group of 20 nations will help spur global growth.

``The krone may get a boost from the inflation data because rates could remain elevated, but the effect won't last long,'' said Geoffrey Yu, a currency strategist in London at UBS AG. ``Central banks with strong easing profiles are in favor at the moment and a jump in inflation may keep the Norges Bank from cutting as fast as it could.''

The krone advanced 1 percent to 8.6998 per euro by 4:48 p.m. in Oslo. The currency climbed 1.8 percent to 6.7860 per dollar. Crude rose as much as 7.4 percent to $65.56 a barrel today.

Norwegian consumer prices surged 5.5 percent last month, the most since November 1988, from 5.3 percent in September, the Oslo-based statistic office said today. The median estimate of 13 economists in a Bloomberg survey was a drop to 5.2 percent.

Underlying inflation, excluding energy and taxes, quickened to 3.3 percent, the highest since the office began compiling data in 1995, it said. The central bank's target is 2.5 percent.

Rates Outlook

Norway's krone fell in 10 of the past 11 weeks against the euro, helping fuel inflation, as policy makers reduced rates to 4.75 percent last month. Norges Bank will lower the main rate to 3.75 percent by mid-2009, while Swedish and European Central Bank policy makers will cut their benchmarks to 2 percent, Yu said.

The Swedish krona rose for a third day against the euro, gaining 0.9 percent to 9.9754. It climbed 1.8 percent to 7.7738 per dollar.

The krona was boosted as the Dow Jones Stoxx 600 Index of shares added 1.8 percent, for a second daily gain, and the OMX 30 stock index in Stockholm jumped 2.6 percent. The Standard & Poor's 500 Index rose 1.6 percent.

``Norway's and Sweden's currencies will be helped if risk appetite continues to strengthen,'' David Simmonds, London-based head of currency research at Royal Bank of Scotland Group Plc, wrote in a client note today.

Gains for the krona may be limited before a government report tomorrow that will probably show underlying inflation in Sweden slowed to 2.9 percent, from 3.4 percent in September, according to a Bloomberg survey of 9 economists.

Government bonds fell, with the yield on Norway's 6 percent government bond maturing May 2011 rising 6 basis points to 3.63 percent, according to Danske Bank A/S prices. The yield on Sweden's 5.25 percent note due March 2011 increased 1 basis point to 2.62 percent. Yields move inversely to bond prices.

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