Norway's central bank cut its key interest rate on Thursday to a record-low zero percent from 0.25% in a surprise move, seeking to cushion an economy reeling from the Covid-19 pandemic.
Most economists polled by Reuters had predicted rates would stay on hold.
It was Norges Bank's third rate cut in less than two months, slashing the cost of borrowing from 1.5%, and rates are likely to stay at zero at least until the end of 2023, its forecasts showed.
"We expect activity in the Norwegian economy to decline by around 5% in 2020, a decline of a magnitude that we have not seen since World War II," Governor Oeystein Olsen told a news conference.
"Activity in the economy is expected to pick up as containment measures are eased. But it will likely take time for output and employment to return to the levels prevailing before the pandemic."
Norges Bank is unlikely to join Denmark, Switzerland or the European Central Bank in cutting its policy rate into negative territory, although it has not completely excluded doing so.
"The way we see things going forward, we don't foresee any further rate cuts. But then we add that ... the committee is especially focused on having well-functioning financial, including money, markets. So nothing is dismissed," Olsen said.
The mainland economy, which excludes oil and gas output, is now expected to contract by 5.2% in 2020, down from a March 13 forecast of 0.4% growth. The bank expects growth of 3.0% in 2021, up from 1.3% seen earlier.
The crown, Norway's currency, fell to trade at 11.09 against the euro at 0933 GMT, down from 11.07 just before the 0800 GMT rate announcement. It had already weakened from the twin impacts of the novel coronavirus and a crash in oil prices.
"This decision comes unexpected, and is not in line with consensus," Nordea Markets said in a note to clients.
Until March, Norway's key policy rate had never been lower than 0.5%, the level which it stood at from 2016 to 2018.
"Given that Norges Bank has established a reputation for doing exactly what it says, we have removed the further 25bp cut that we had penciled in for the June meeting," said Capital Economics in a note to clients, one of two brokerages surveyed by Reuters that had expected a rate cut.
"As a result, we now expect interest rates to remain rooted at zero until 2022 at least."
The government has invoked emergency powers to restrict travel and shut many public and private institutions, although steps are now being taken to gradually open up society.
April unemployment surged to more than 15%, the highest level on record, amid mass layoffs by corporations, data from Norway's Labour and Welfare Agency (NAV) show.
The government has offered business loans, tax deferments and spending worth 360 billion crowns ($35 billion), while the central bank pumped money into the financial industry and said it may intervene in the currency market.