Norway’s Krone Climbs After Central Bank Cuts Key Rate to 2.50%

By Bo Nielsen

Feb. 4 (Bloomberg) -- Norway’s krone climbed against the euro after Norges Bank cut its benchmark interest rate by 50 basis points to 2.50 percent to revive the economy.

The Norwegian currency posted the biggest gain versus the euro in seven days after the Oslo-based central bank said the lowering of its key rate will curb the negative effects of the financial crisis on the economy. The reduction matched the median estimate in a Bloomberg survey of economists.

“The meeting didn’t bring any surprises so the krone will continue its strengthening path,” said Dag Muller, an analyst in Stockholm at SEB AB.

The krone jumped 1.4 percent to 8.8708 per euro, before trading at 8.8978 as of 2:50 p.m. in Oslo. Against the dollar, the krone slipped 0.4 percent to 6.9241.

“Expectations of low and stable inflation now make it possible to use monetary policy actively,” central bank Governor Svein Gjedrem said in a statement following the decision.

Norway reduced the main rate by 175 basis points in December, fueling an 8.4 percent plunge for the krone against the euro in the month. The krone gained 9.7 percent versus the European common currency in January.

In other trading, the Swedish krona dropped against the dollar on concern the country’s banking industry is vulnerable after Standard & Poor’s said two days ago the nation’s lenders face rising loan losses.

The krona fell 0.9 percent to 8.2788 per dollar. It rose 0.4 percent to 10.6550 against the euro.

Government bonds fell. The yield on Sweden’s 5.25 percent government note due in March 2011 rose five basis points to 1.42 percent. The yield on Norway’s 6 percent bond due in May 2011 increased six basis points to 2.34 percent. Yields move inversely to bond prices.

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