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Norway’s central bank cuts interest rate

Norway’s central bank cut its key interest rate by 0.25 points to 1.5 percent on Wednesday, as it reacted to continuing global financial worries and the effects of a strong krone.

Norway's central bank cuts interest rate
Photo: Norges Bank

“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”.

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BANK

Norway’s oil fund warns of trade wars impact

The managers of Norway's sovereign wealth fund, the world's biggest, expressed concern Tuesday about global trade tensions, which could heavily impact its value.

Norway's oil fund warns of trade wars impact
Trond Grande, the deputy chief of Norges Bank Investment Management, explains the second quarter result. Photo: Mariam Butt/NTB Scanpix
The fund posted a positive return of 1.8 percent, or 167 billion kroner (17.2 billion euros, $19.8 billion), in the second quarter, helping erase a loss of 171 billion kroner in January-March that was attributed to a volatile 
stock market.
   
The Government Pension Fund Global, which saw its total value swell to 8.33 trillion kroner (859 billion euros, $991 billion) by the end of June, manages the country's oil revenues in order to finance Norway's generous welfare state when its oil and gas wells run dry.
   
But Norway's central bank, which runs the fund, said geopolitical and trade tensions presented a risk.
   
“It's fair to say that increased trade barriers or even trade wars will not be beneficial for the fund as a long term global investor,” Trond Grande, the deputy chief of Norges Bank Investment Management, told reporters.
   
Markets are worried about a trade dispute between the United States and China. Accusing Beijing of unfair competition, the US administration is considering slapping a new round of levies worth $200 billion on Chinese goods.
   
Talks between the two slated for Wednesday and Thursday aimed at resolving the dispute have however eased concerns somewhat. 
   
Following US-Turkey tensions that sent the Turkish lira and the Istanbul stock market tumbling, the Norwegian fund said its assets there were worth less than the 23 billion kroner they were at the beginning of the year.
   
“We've seen the market rise for a long time, that there are different political and geopolitical events in the world that can affect the market, and we have to be prepared for the fact that (the value of) the fund can go down a lot,” Grande concluded.     
   
The fund's strong second quarter was attributed primarily to its share portfolio, which accounts for 66.8 percent of its investments and which rose by 2.7 percent.
   
Real estate holdings, which account for 2.6 percent of its holdings, rose by 1.9 percent, while bond investments, which represent 30.6 percent, remained flat. 
   
Faced with falling oil revenues in recent years, the Norwegian government has been tapping the fund to finance public spending since 2015. But with oil prices recovering, the fund registered its first inflow in three years in June.