That relationship helped to rescue the economy when the oil price crash hit Norway with full force in 2014. Since then, the krone has struggled to keep up with climbing oil prices, forcing policy makers to re-think their models. “Based on experience, we have underestimated the longevity of the weakening,” Norges Bank Deputy Governor Egil Matsen said. Norges Bank has raised its estimate on the currency's equilibrium exchange rate, meaning that it now sees the weakening currency as a structural shift. International investors are reluctant to being invested in “small” currencies such as the krone in periods of heightened risk, the deputy governor said. Country specific factors could also play into the equation. In September, Norges Bank went against the prediction of most analysts and decided to raise its key interest rate.
- Bloomberg.com -