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Forex pairs in this Article » (Barcelona) - "As interest in NOK has picked up in recent years, as the market has become better educated in what exactly makes Norges Bank tick - for the impact of the exchange rate, the I-44 import-weighted krone index is main input and 85 is the currently accepted 'warning level'." writes Research Analyst Gareth Berry at UBS.

We are indeed hovering around levels slightly lower than 85.75 aggregate level suggested in the Q3 monetary policy report, though the actual change since the December policy meeting is minimal. Given the EUR (with the euro-pegged DKK accounting for close to 50% of the I-44) is expected to perform decently for now, Norges Bank should actually be less concerned about the I-44 (USD weighting only 5.6%) level. More importantly, looking at the bigger picture, it is worth asking the question: does the I-44 actually matter that much?

As opposed to Switzerland and Japan, underlying inflation has actually never been outright negative at any point during the last 10 years bar a tiny dip to -0.1% YoY in January 2005. Most central banks will note that disinflation is infinitely easier to deal with than deflation. The fact that a +20% decline in import prices in the last 5 years has not resulted in outright deflation or deflation expectations actually points to some structural factors within the Norwegian economy underpinning price levels. According to Berry, "Given in the longer term Norges Bank is aware that its ability to influence FX markets is very limited, barring the odd piece of rhetoric we expect them to allow the currency to run its natural course."
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