At an extraordinary meeting on 19 March, Norges Bank’s Monetary Policy and Financial Stability Committee unanimously decided to reduce the policy rate by 0.75 percentage point to 0.25 percent.
Since Norges Bank cut the policy rate last week, the situation in the Norwegian economy has continued to worsen. The measures to contain the spread of coronavirus have led to a number of businesses having to close or reduce their activities. Many workers are being laid off, and unemployment has shown a marked increase. The negative impact on the world economy is intensifying, and oil prices have fallen further. Financial market stress has increased, and higher credit and money market premiums make funding more expensive for Norwegian enterprises. The krone has depreciated sharply.
Norway has room for economic policy manoeuvre, good welfare arrangements and solid banks. As such, we are essentially well positioned to face the prevailing crisis. Lower borrowing costs for existing and new loans can make it easier for Norwegian enterprises to weather a difficult period. This can also help households facing reduced income. When the containment measures are scaled back and the situation returns to normal, low interest rates can support a faster rebound in activity.
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.
The next ordinary monetary policy meeting will take place on 6 May, followed by a press conference and publication of the policy rate decision on 7 May.
Source: Norges Bank / Norway Today