Norway cuts key rate to 0.25%, lowest ever, to fight crisis
INTERNATIONAL - Norway’s central bank cut its benchmark interest rate to the lowest level ever and said more easing may follow, as policy makers struggle to fight a deep crisis that has already delivered a body blow to the krone.
It’s the second time Norges Bank has resorted to emergency rate cuts in response to the coronavirus pandemic, after slashing half a point off its benchmark on March 13.
“Since Norges Bank cut the policy rate last week, the situation in the Norwegian economy has continued to worsen,” the bank said on Friday. It said it “will continually consider measures to ensure that the policy rate passes through to money market rates” and that it “does not rule out a further rate cut.”
Friday’s decision brings Norway’s deposit rate to 0.25% from 1%, and is the bank’s biggest single cut since the financial crisis. It’s the latest in a wave of global easing to fight the fallout of the virus. But the extreme measures, including those delivered by the Federal Reserve, have so far had mixed results in stemming the market panic.
The Norwegian krone, which suffered its worst sell-off in living memory earlier in the week, was trading about 0.9% higher against the euro as of 9:29 a.m. in Oslo, although it pared earlier gains after the central bank’s announcement.
Norway’s reliance on trade and oil -- it’s western Europe’s biggest crude producer -- has left it particularly exposed to the risk of a recession, and investors have responded by dumping kroner. The currency is still trading around record lows against both the euro and the dollar, even after the central bank said it was ready to intervene in currency markets for the first time in more than two decades.
“The measures to contain the spread of coronavirus have led to a number of businesses having to close or reduce their activities,” Norges Bank said. “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.”
A surge in temporary unemployment benefits applications earlier this week “must have been a shocker” to the central bank, Danske Bank analyst Kristoffer Kjaer Lomholt said in a chat message. But “the bar is very high” for cutting rates below zero, he said.
Thanks to its sovereign wealth fund -- the world’s biggest -- Norway has significant buffers protecting it from the worst. Prime Minister Erna Solberg has already unveiled numerous stimulus measures and has pledged to do whatever it takes to shield the economy from collapse.