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3/17/2016, 10:13 AM (Source: TeleTrader)
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Norway's central bank cuts key policy rate to 0.50%, hints at further cuts

The Norges Bank, has decided to lower its key policy interest rate by 0.25 percentage points to 0.50%. Overnight lending rate was set at 1.50%, while reserve rate will be -0.50%, all effective from March 18, 2016.

"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", said governor of the Norway's central bank Øystein Olsen.

The Norges Bank estimates the global economic growth to be somewhat lower than expected, and pointed out that interest rates have fallen in other countries. Norwegian economy has shown its own weakness and the bank expects unemployment to edge up. The depreciation of the national currency krone has pushed the consumer prices up.

"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," said the Norges Bank report.

"The current outlook for the Norwegian economy suggests that the key policy rate may be reduced further in the course of the year", said governor Øystein Olsen.

However, the central bank warned that lower interest rates, approaching a "lower bound," could augment vulnerabilities in the financial system, so the bank will proceed with greater caution min setting the interest rates.

"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," said the report from the Norges Bank.

The news conference on the interest rates was scheduled at 10:30 a.m. CET.

In Oslo, the OSEBX index was up 0.04% at 586 points at 10:26 a.m. CET.

The Norwegian krone strengthened sharply on following the interest rate announcement: the krone rose 0.70% versus the euro, and stood at 9.4169 kroner, while shooting up 1.19% against the U.S. dollar to 8.3542 kroner, at 10:26 a.m. CET.

 

Image: Norges Bank

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