Norway Cuts Key Rate Unexpectedly

Norway’s central bank lowered its key interest rate sharply by 75 basis points at an extraordinary meeting and signaled room for more easing, as the negative impact of coronavirus, or Covid-19, on the economy intensified further.

The Monetary Policy and Financial Stability Committee of Norges Bank unanimously decided to cut the policy rate to 0.25 percent from 1.00 percent, on Friday. The bank had lowered the rate by 50 basis points on March 13.

Still, the committee does not rule out a further rate cut.

Lower interest rates will make it easier for enterprises to weather a difficult period and also help households facing reduced income, the bank noted.

Policymakers observed that a number of businesses were closed and unemployment increased markedly. The negative impact on the world economy is intensifying, and oil prices have fallen further.

Financial market stress has increased, and higher credit and money market premiums make funding more expensive for Norwegian enterprises. Moreover, the krone has depreciated sharply.

Nonetheless, Norway has room for economic policy manoeuvre, good welfare arrangements and solid banks, Norges Bank said. “As such, we are essentially well positioned to face the prevailing crisis,” the bank added.

As part of a coordinated action late Thursday, the Norges Bank and the US Federal Reserve entered a temporary swap line to improve liquidity in the financial markets. The latest $30 billion facility will be in place for at least six months.

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