You are here

Norway central bank cuts key rate to record low

[OSLO] Norway's central bank on Thursday said it had cut its key interest rate by a quarter point to a record low 0.5 per cent as growth and inflation were expected to shrink amid plunging oil prices and a weaker global economy.

Central bank governor Oystein Olsen suggested the rate could be reduced further "in the course of the year", possibly even into negative territory "should the Norwegian economy be exposed to new major shocks."

The bank predicted the Scandinavian country's oil-based economy would be further hit by "somewhat lower than expected" global growth, as "interest rates abroad have fallen".

"Growth prospects for the Norwegian economy have weakened somewhat and inflation is expected to moderate further out," it said in a statement.

Market voices on:

In a move unprecedented in its scale, the European Central Bank on March 10 slashed already record-low interest rates to zero, pumped massive new sums into the banking system and, for the first time, bought corporate bonds in a bid to jumpstart the stalled eurozone economy.

The US Federal Reserve meanwhile cut its outlook for the US economy and kept its interest rate policy unchanged Wednesday.

In Norway, mainland gross domestic product - which excludes the strong cyclical variations in oil and gas production as well as shipping - registered its lowest growth since 2009 last year, at 1.0 per cent.

Including the oil and gas sector and the shipping industry - sectors which account for more than 20 per cent of GDP - the economy grew by 1.6 per cent last year despite a contraction of 1.2 per cent in the fourth quarter.

The central bank meanwhile forecast a rise in the jobless rate, which remains relatively low by international standards at 4.6 per cent in November.

And inflation, which ticked in at 3.1 per cent in February boosted by the weakening krone and a rise in purchasing power, was seen slowing amid a strengthening krone and lower wage hikes than in 2015, the bank said.

The krone, hit hard by the plunging oil price, strengthened slightly on Thursday's rate cut announcement, to 9.479 kroner against the euro.