“The continuing downturn abroad and the strong krone are contributing to keeping inflation low and are weighing on growth in Norway. Against this background, the Executive Board has decided to reduce the key policy rate”, said bank governor Øystein Olsen in a statement.
Norges Bank said it had seen an improvement in international markets in 2012, but long-term forecasts indicated slow global growth allied with low interest rates in most advanced economies.
While growth in Norway is holding firm, projections suggest the pace of the country's growth will slow, the bank said.
With inflation expected to run at 1.25 to 1.50 percent to the end of the year, the central bank expects it will take several years before inflation gets back on target.
“The current outlook suggests that the key policy rate may remain low longer than projected earlier. There is a high level of uncertainty regarding economic developments, and we have monetary policy leeway in both directions”, said Olsen.
The bank said the key rate would remain at between 1 to 2 percent until June 2012 “unless the Norwegian economy is exposed to new major shocks”.