Norway Lowers Benchmark Rate to Revive Growth

Governor Svein Gjedrem. Photo: Norges Bank.

Norges Bank’s Executive Board decided Feb. 4 to reduce its key policy rate by 0.50 percentage point to 2.50 per cent.

“Global economic growth has weakened further since December. The international downturn seems to be having a broad impact and is likely to be deeper than previously expected,” says Governor Svein Gjedrem. The decrease in interest rates and the new fiscal measures will curb the effect of the international downturn on output and employment in Norway.

Inflation has moderated as expected. There are prospects that inflation may continue to ease somewhat, but will remain close to 2.5 per cent. Expectations of low and stable inflation now make it possible to use monetary policy actively.

There is still considerable uncertainty surrounding developments ahead. The downturn in the Norwegian economy may be deeper and more prolonged than Norges Bank has assumed. Inflation may in turn become too low. This would then indicate that the interest rate should be cut further. On the other hand, the key policy rate has already been reduced considerably. It will take time for the effects of the new, lower interest rate level to become evident. This may in isolation indicate that developments should be monitored over a period before making substantial changes to the key rate.

“The outlook for the Norwegian economy and the balance of risks suggest that it is now appropriate to reduce the key policy rate by 0.50 percentage point to 2.50 per cent,” says Svein Gjedrem. 

Source: Norges Bank.