A Seventh Rate Cut in Norway

June 17, 2009

The Executive Board of the Norges Bank implemented a 25-basis point reduction of its policy rate to 1.25%. A majority but not all analysts anticipated this cut later in the summer.  Previously, the central bank had lowered its key rate by 100 basis points in two steps last October, 175 bps in a single move during December, 100 bps in two steps during the first quarter of this year, and 50 bps early in May.  Officials indicated that the rate will hover near 1% over coming months and average only some 1.5% next year.  Non-energy GDP is still shrinking and projected to drop about 1.5% in 2009.  Unemployment is trending up, and inflation is expected to trend down to about 1.5% in the coming year, which would be below its target.  Financial markets have improved a bit, but uncertainty remains high.  Officials do not want to take any chance with a double-dip recession.  Today’s action was the smallest move so far and buys extra insurance that the baseline scenario of a gradual recovery comes true. Click here for today’s statement from the Norges Bank.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.


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