Whether you can call it the ripple effect, the domino effect or the butterfly effect it all amounts to the same thing; the repercussions of the Swiss National Bank’s pegging exercise are still being felt. Since September 6th when the Swiss Franc was pegged to the Euro, investors have sought out a new safe haven, and the Norwegian Krone is quickly becoming the darling of the currency world. And Norwegians don’t seem to like it anymore than their Swiss counterparts.
Much like its Swiss neighbor, Norway has a comparatively thriving economy, which is estimated to expand by 3% in 2011, and 3.75% in 2012. Its unemployment rate is the lowest in Europe at 2.8%. Inflation is rising, but at a moderate rate of 1.2% in July, as compared to 0.7% the previous month. Norway’s credit rating is AAA, and they have very low public debt. Further, the country is on track to have a 12.5% budget surplus this year. All in all, it’s an enviable economy.
But, for how long? The Norwegian Krone is continuing to rise, and like the then-overvalued Swiss Franc, is likely to wreak havoc on the economy as it appreciates. Already, the governor of the Norwegian central bank is considering an interest rate cut which would (hopefully) curtail the safe-haven inflows. The surge in the Krone’s value naturally has quite a few ramifications for Norway, including the possibility that the tourism industry could suffer (just as the high season approaches), as would exporters of Norwegian goods.
Maybe it won’t be any time in the near future, but with economic turmoil escalating in the Eurozone, and risk appetite waning, it’s a near certainty that the safe haven currencies will be sought after. And while the Norwegian central bank governor insists that the government has a policy of “not intervening,” central bank governors have been known to surprise the markets now and again.