Central Banks

Norway's central bank cuts rates again to curb virus hit

Key Points
  • It was Norges Bank's second abrupt rate announcement triggered by the virus, following a half-point cut on March 13, when Governor Oeystein Olsen said the Norwegian economy was in a state of emergency.
  • "Since Norges Bank cut the policy rate last week, the situation in the Norwegian economy has continued to worsen," the central bank said in a statement announcing the unanimous decision of its monetary policy committee.
Pedestrians pass the entrance to Norway's central bank, also known as Norges Bank, in Oslo, Norway, on Thursday, Feb. 13, 2014.
Kristian Helgesen/Bloomberg | Bloomberg | Getty Images

Norway's central bank has cut its key policy rate to a record- low 0.25% from 1.0% in a bid to alleviate the economic impact from the coronavirus outbreak, and may reduce rates further, it said on Friday.

It was Norges Bank's second abrupt rate announcement triggered by the virus, following a half-point cut on March 13, when Governor Oeystein Olsen said the Norwegian economy was in a state of emergency.

"Since Norges Bank cut the policy rate last week, the situation in the Norwegian economy has continued to worsen," the central bank said in a statement announcing the unanimous decision of its monetary policy committee.

"Norges Bank will continually consider measures to ensure that the policy rate passes through to money market rates. The Committee does not rule out a further rate cut," it added.

The crown currency, which has weakened sharply this year from the twin impact of the virus and a crash in oil prices, weakened against the euro to trade at 11.95 at 0751 GMT from 11.79 just ahead of the 0730 GMT announcement.

"We still expect Norges Bank to reduce its key rate further down to zero in the weeks ahead," Nordea Markets wrote in a note to clients.

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In addition to rate cuts, Norges Bank has launched a series of emergency measures to help stabilize markets, including a warning that it may intervene in the currency for the first time in more than two decades.

"Negative interest rates may also come to Norway," DNB Markets Chief Economist Kjersti Haugland tweeted.

The Norwegian government has invoked emergency powers to close a wide range of public and private institutions and warned against foreign travel, while the central bank pumped money into banks.

Parliament approved extraordinary fiscal spending to back companies and those left unemployed, and the government said more plans were being developed as it sought to avert a wave of bankruptcies.

The lockdown on economic activity has brought a surge in temporary layoffs, however, and thus a sharp rise in unemployment.