OSLO, Jan 7 (Reuters) – The Norwegian and Swedish currencies will appreciate versus the euro in 2022, overcoming economic strains posed by a recent resurgence of the coronavirus pandemic, a Reuters poll of analysts predicted.
Both Norway and Sweden have reintroduced social restrictions to help combat the outbreak of the Omicron variant of COVID-19, first discovered in late November, but their currencies are still expected to rise, forecasts show.
In Norway the economy is aided by a boom in the price of natural gas, the country’s biggest export alongside crude oil, and the currency has received a boost from hawkish monetary policy.
Norges Bank raised its key policy rate in September and again in December last year and says it aims for three more hikes in 2022, cementing its position as the most aggressive rate setter in the developed world.
Adding fuel to the currency is the fact that Norges Bank, on behalf of the government, continues a long-standing policy of buying crowns on a daily basis to help pay for public spending, despite a record petroleum-driven trade surplus.
Calculating future tax payments by oil companies is complex, and Norges Bank may therefore await actual payments in coming months before it embarks on a new direction, Nordea Markets said in a Jan. 4 note to clients.
“Until the central bank changes gears, we will see higher Nibor (interest rates) and a stronger NOK,” Nordea wrote.
The Reuters poll predicted the Norwegian currency by the end of the year would trade at 9.80 against the euro, the median forecast showed, up from around 10.07 currently.
But while the value of the Norwegian currency rose against the euro in 2021, beating expectations found in a poll last January, developments were notably weaker in Sweden.
The Swedish crown went from being one of the best performing major currencies in 2020 to being one of the worst last year – despite a rapid economic recovery – amid global supply chain problems, bottlenecks and a dovish Riksbank.
In 2022, much will again depend on the central bank. Markets are expecting above target inflation and continued robust growth to accelerate plans for policy normalization, potentially boosting the currency against the euro.
“Inflation expectations may rise a bit and that could trigger the Riksbank into being a little less soft,” said Anders Eklof, Swedbank’s chief currency strategist.
The pace of the Riksbank tapering will be scrutinised, and many analysts believe rate hikes will come faster than indicated in the central bank’s current rate path, which calls for a first hike only in late 2024.
Swedbank sees the crown at 9.90 against the euro in 12 months, a rise from around 10.33 currently, while the median forecast among economists in the poll stood at 9.95.
But with Omicron infections picking up pace and the dispute about whether the current high pace of inflation is temporary or a more persistent factor, the outlook remains uncertain.
The Riksbank expects inflation to ease in the second half of the year. And the longer rate-setters stick to plans for a hike only in late 2024, the weaker the prospects for the Swedish currency.