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Norway cuts key rate to 0.5%, flags further cuts

Norway's central bank on Thursday cut its key interest rate to an all-time low of 0.5 percent from 0.75 percent, and raised the prospect of a move into negative territory.

The bank warned that should the Norwegian economy be exposed to further shocks, the possibility of negative rates could not be excluded.

"We have experience from other countries that it's possible to go beyond the zero lower bound...if necessary, we have extended room for maneuver," central bank governor Øystein Olsen told CNBC.

He added it would, however, require new shocks which he did not see at this point.

So far the board had not considered other measures such as quantitative easing, he added.

Norway's economy has been hurt by falling oil prices and the central bank warned that developments in the Norwegian economy had been weaker than foreseen, with unemployment expected to edge up. Unemployment currently stands at 4.5 percent, he said, which Olsen believed was "close to the peak".

"If you see oil continue to tick higher, then we are not going to see negative rates," Thomas Harr, Global Head of FICC Research at Danske Bank said. The central bank's general macroeconomic forecasts are based on oil at a rate of $50-$55 per barrel.

Since the summer of 2014, the Norwegian economy has been experiencing a clear downturn, the country's statistics agency Statistics Norway said in a report published last week.

Oil prices started on their sharp downward trajectory at that point and the country's oil investments suffered. Mainland Norway's gross domestic product (GDP) increased in 2015 by 1.0 percent, the agency said, the weakest growth since the financial crisis in 2009.

The central bank said oil investment was expected to show a somewhat more pronounced fall in the years ahead than previously foreseen.