Norwegian Central Bank Rate Reduced to 3% from 4.75%
December 17, 2008
The Norges Bank became the latest to exceed market expectations in the 175-bp size of its key rate cut. The move followed reductions of 50 basis points each on October 15th and 29th, bringing to 275 basis points the amount of rate reduction in the space of nine weeks. As with many other central banks, this rapid easing represents a trend reversal. The Norges Bank had followed 175 basis points of tightening in 2007 with increases of 25 bps each in April and June of this year.
The central bank statement speaks of a pronounced cyclical downturn in the world economy, falling oil prices, markedly worse Norwegian growth prospects since October, and likely declines in both jobs and production over coming quarters. Sub-target inflation is now a risk, and greater-than-anticipated krone depreciation is only mentioned in a positive way as a factor that might mitigated imported recession. The statement pre-announces additional rate cuts — officials do not rule out the chance of zero rates eventually — and projects a 2-3% range for its key rate over the period to its March 25th Monetary Policy Report.
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