Norges Bank’s Executive Board decided to lower the key policy rate by 0.25 percentage point to 0.50 percent.
“Growth prospects for the Norwegian economy have weakened somewhat and inflation is expected to moderate further out. The Board has therefore decided to lower the key policy rate”, says Governor Øystein Olsen.
It appears that global growth will be somewhat lower than expected and interest rates abroad have fallen. Developments in the Norwegian economy have been weaker than foreseen and unemployment is expected to edge up. The krone depreciation has pushed up consumer price inflation. There are prospects that wage growth will be lower in 2016 than in 2015. As the effects of the krone depreciation unwind, inflation will drift down.
“The current outlook for the Norwegian economy suggests that the key policy rate may be reduced further in the course of the year”, says Governor Øystein Olsen.
Lower interest rates could increase financial system vulnerabilities. As the key policy rate approaches a lower bound, the uncertainty surrounding the effects of monetary policy increases. This now suggests proceeding with greater caution in interest rate setting. Should the Norwegian economy be exposed to new major shocks, the Executive Board will, however, not exclude the possibility that the key policy rate may turn negative.
Source: norges-bank.no / Norway Today