Norges Bank to Boost Daily FX Purchases by NOK 100 Million in January
In a statement released on Monday, Norges Bank announced plans to buy foreign currencies worth NOK 250 million per day in January. This move effectively involves selling Norwegian kroner, with the daily amount increased by NOK 100 million from December levels.
The reaction in the foreign exchange market was minimal. As of Monday morning, one dollar was trading at around NOK 11.37, while one euro was at approximately NOK 11.84.
Covering Budget Deficit
The bank’s daily currency transactions are conducted on behalf of the Norwegian state. Norway earns money from oil and gas, both in Norwegian kroner and foreign currencies. A portion of these funds is used to cover the state’s planned budget deficit, with the remainder saved in the Norwegian Oil Fund.
The Finance Ministry has directed Norges Bank to execute these purchases. Between 2014 and 2022, when oil revenues in kroner were insufficient to cover the deficit, the bank bought Norwegian kroner. However, since April 2022, when oil revenues surged, the bank has been selling kroner daily to acquire foreign currencies, which are deposited into the Oil Fund.
In January 2023, the bank reduced its daily krone sales significantly before increasing it again in May and June. In July, the level was lowered to 400 million kroner per day, and in November, it was further reduced to 150 million kroner per day, a level maintained until December.
Meanwhile, oil companies buy Norwegian kroner to pay their tax bills, offsetting the state’s operations in the foreign exchange market.
Unchanged Interest Rate
At its latest meeting before Christmas, Norges Bank decided to keep the policy rate unchanged at 4.5 percent. Bank governor Ida Wolden Bache stated that while a tight monetary policy is still needed to stabilize rising prices, the time for interest rate cuts is approaching. The bank expects to lower interest rates in the first quarter of next year, effectively in March.
During the press conference, the central bank chief confirmed that increased government spending is putting upward pressure on interest rates.
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