Norway’s central bank (CB) has kept its main interest rate unchanged at 1.5% as inflation continues as projected. The bank said the economy has developed largely in line with forecasts made in September.

Norges Bank last month raised rates for the fourth time in a year amid solid domestic growth, but said further tightening was unlikely as the global economy gradually slows.

All 35 economists polled by Reuters had expected rates to remain on hold ahead of Thursday’s announcement, and only eight of those - less than one in four - predicted any hikes at all in the next several years.

“The Executive Board’s current assessment of the outlook and balance of risks suggests that the policy rate will most likely remain at the present level in the coming period,” Norges Bank Governor Oeystein Olsen said in a statement.

The Norwegian crown currency weakened against the euro to trade at 10.1480.

“The upturn in the Norwegian economy is continuing broadly in line with expectations in September. Underlying inflation has been as projected. Global uncertainty persists, and interest rates abroad are very low,” the central bank wrote.

“At the same time, the weak crown currency may result in higher inflation ahead.” The crown last week hit an all-time low of 10.24 to the euro and is trading near 18-year lows against the dollar, weighed down by global trade jitters and as investors reduce their risk exposure towards year-end, analysts have said.

“Norges Bank indicates no major change in its view. Hence, rates will remain unchanged at the December policy meeting,” Nordea Markets wrote in a note to clients.

The currency’s impact on inflation should nevertheless be closely watched, Nordea added.

“If the current crown weakness continues over the next couple of months, we should expect the rate path to be revised up in December,” it said.

Norway’s crown should be sailing high, thanks to a central bank that’s raising interest rates, a robust economy and a recovery in the price of its main export. Instead, it’s this year’s second worst major currency performer.

Economists are for the most part unable to pinpoint domestic reasons for the crown’s weakness - it has fallen 3% against the euro this year alone - and some fret the trend is a reflection of worrying signs for the global economy. Although the Norges Bank held rates at 1.5% on Thursday without flagging a further tightening of policy in the near term, it has been an outlier among global central banks in having raised rates three times in the past year.

The crown’s scant gains to a one-week high versus the euro after the policy meeting barely register against its 40% fall since mid-2012. It hit its lowest ever level last Friday at 10.245.

And that despite the crown being backed by a much higher interest rate than the main euro zone rate of minus 0.5%.

The last time the currency of the wealthy Scandinavian oil-exporter was even close to its current level was during the global financial crisis in 2008-2009.

And this time too, the root of the weakness may lie in deepening uncertainty about the world economy and investors’ reluctance to hold assets in small, open economies such as Norway’s which are highly exposed to global trade and economic growth.

“All smaller trade-linked currencies have suffered. Domestic factors have been secondary,” said Erica Dalsto, chief strategist for Norway at SEB, who sees the crown possibly hitting 10.30 by year-end.

She pointed to weakness in the neighbouring Swedish crown and the increasing correlation since early-2017 between the two currencies.

Dalsto said the Norwegian crown’s poor performance suggested there was a lot of uncertainty among international investors spooked by U.S.-China trade ructions, Brexit wrangling and tensions in the Middle East.

The Norges Bank appears to concur, noting in its September policy report that the crown had weakened markedly at the beginning of August when trade tensions between China and the US deepened.

Dalsto’s colleague Richard Falkenhall, a senior FX strategist at SEB, suggested the weakness could be down to big investors steering clear because of the risk of a global liquidity seize-up in event of a market crisis.

That would make the crown and other smaller currencies like it highly vulnerable to a sharp fall. Others are less sure why the crown is performing so poorly.

Analysts were expecting that last year’s crown slide, possibly due to the fall in the price of oil, would ease off in 2019. But while crude prices have risen 14% since January, the crown has continued to skid lower.

Reuters