Norway Unexpectedly Trims Key Rates; Hints At Further Cuts
September 24 2015 - 4:22AM
RTTF2
Norway's central bank unexpectedly lowered its key policy rate
by a quarter point as fall in oil prices dampened economic growth,
and suggested that further reduction may be forthcoming in the
coming year.
The Executive Board of Norges Bank decided to cut its key rate
to a record low 0.75 percent from 1.00 percent. The bank was widely
expected to leave its rates unchanged on Thursday.
This was the second reduction in interest rates so far this
year. The bank last reduced the rate in June, when it cut policy
rate by 25 basis point.
Governor Øystein Olsen said the current outlook for the economy
suggests that the key policy rate may be reduced further in the
coming year.
Jack Allen, a European economist at Capital Economics, expects
an interest rate cut of 0.5 percent could come in the second
quarter of next year.
The scope for rates to undershoot the Bank's forecasts is
smaller than in the past, but he said he would not be surprised to
see further rate cuts later in 2016.
"Growth prospects for the Norwegian economy have weakened, and
inflation is projected to abate further out," Olsen said.
Mainland Norway expanded at a slower pace in the second quarter
largely due to the weakness in industries supplying the petroleum
industry. The economy grew only 0.2 percent from the first
quarter.
According to the central bank, economic growth is likely to
remain low for a longer period than projected due to falling oil
prices. Oil investment is also forecast to fall more than estimated
in June. Unemployment is also expected to continue to rise.
At the same time, the krone depreciation has pushed up consumer
price inflation. Low wage growth is keeping down cost growth, and
inflation will edge down as the effects of the krone depreciation
unwind, the governor said.
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