Norway’s key interest rate lowest ever

Jan F. Qvigstad. Photo: Nancy Bundt.

The Executive Board of Norway’s Central Bank (Norges Bank) has decided to reduce the key policy rate by 0.25 percentage point to 1.25 per cent with effect from Thursday 18 June 2009. This is the lowest Key interest rate in Norway ever.

The cut came as a surprise to most Norwegian analysts, but they now believe the bottom has been reached and that the interest will start climbing again in 2010.

“We have made substantial cuts in the interest rate in response to the challenges generated by the crisis. The key policy rate has been reduced by 4½ percentage points since September.  It seems likely that domestic output will gradually pick up again, but inflation is expected to slow to around 1½ per cent in the coming year,” says Deputy Governor Jan F. Qvigstad.

Norges Bank’s projections are approximately the same as in March, and the analysis in its Monetary Policy Report 2/09 indicates that the key policy rate can remain close to 1 per cent for a period ahead. The global economic downturn continues. Activity is also contracting in Norway and unemployment is rising, the bank states in its report.

“Uncertainty with regard to developments ahead is still high. So far, the fall in global activity has been more pronounced than expected.  Confidence indicators for the corporate and household sectors nevertheless indicate that the fall in activity is moderating both in Norway and abroad. The functioning of financial markets has also improved somewhat,” says Qvigstad.

Source: Norges Bank