Norway Monetary Policy

Norway

Norway: Norges Bank cuts key policy rate to 1.50%

March 14, 2012

At its 14 March monetary policy meeting, the Norges Bank (NB) decided to lower the sight deposit rate by 25 basis points to 1.50%, which means it now sits at its lowest level since December 2009. The decision came as a surprise, as most analysts had expected the NB to stay put after the 50 basis points reduction agreed at the previous meeting on 14 December. The Bank's decision was prompted by a combination of the continuing economic downturn abroad and the strong Norwegian krone, which is keeping inflation in check while weighing on economic growth. The Central Bank reckons that the situation in the financial markets has clearly improved since the last monetary policy meeting, although there is still considerable uncertainty about economic developments in the Eurozone. Owing to the weak economic outlook among Norway's main trading partners, central banks are keeping interest rates very low, which is strengthening the krone and thereby dampening economic growth. On the domestic front, the Bank emphasized that growth in petroleum investment and the oil sector is supporting economic activity, while inflation remains well below its target of 2.5%. The next monetary policy meeting is scheduled for 10 May.


Author: Ricard Torné, Head of Economic Research

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