Norges Bank should follow in the footsteps of the Riksbank by hedging parts of the FX reserves. By doing so, the kroner will strengthen, and provide necessary support for Norges Bank in fighting inflation. NOK weakness is contributing to inflation and challenging policymaking in Norway;
This was a great article, I can’t lie I’m not all to familiar with Norges Bank or Riskbanken but the policy you bring up makes a great deal of sense to me. Thanks for this article I will certainly be residing up on both CBs
One of the things I have thought most central banks should consider is to wrote FX options on their own currency. for Norway, with implied volatility relatively high, this can be a great transaction, earning them premium while helping moderate market movement. selling a series of at-the-money NOK puts in substantial size would result in a huge damping effect on the exchange rate going forward, and act as an effective hedge as you suggest.
Perhaps you can convince them to consider this action.