Norwegian Central Bank Eases More Forcefully Than Expected

December 14, 2011

The Norges Bank overnight deposit rate has been sliced 50 basis points to 1.75%.  After the prior meeting in mid-October, officials on the Executive Board had predicted no changes “for some time ahead,” and analysts were debating whether Norwegian monetary officials would opt for a reduction of 12.5 bps or 25 bps.  However, the ECB has twice eased since the October Norwegian meeting, and today’s action matches the sum of the two ECB moves. 

Today’s decision also reverses Norwegian rate hikes of 25 bps each in May 2010 and May 2011, returning the benchmark to its end-2009 level.  Seven easings were implemented from October 2008 to June 2009, totaling 450 basis points and culminating at a cyclical low of 1.25% until October 2009 when Norges Bank became the first European central bank to normalize.  A second 25-bp hike followed in December 2009.

A statement on the Norges Bank web site observes that economic growth slowed last quarter, inflation is low, and funding for Norwegian banks more costly and difficult to obtain.  No clues are given regarding future monetary policy changes, but the brief message strikes a gloomy mood regarding Europe’s economic environment.

The turbulence in financial markets has intensified and external growth is now expected to be clearly weaker, particularly in the euro area. In order to dampen the impact on the Norwegian economy, the Executive Board has decided to lower the key policy rate.

 Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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