Norges Bank governor Øystein Olsen explains the drop in rate on Thursday. Photo: Terje Bendiksby / NTB scanpix
Norway's central bank has cut its main interest rate to a record low of 0.75% on fears that falling oil prices will hit the economy hard.
Norges Bank slashed 25 basis points from its overnight deposit rate, the amount banks earn by leaving their cash with the central bank, hoping to cushion the economy in the face of fast-slowing growth.
"It is a new era for the Norwegian economy. We are no longer in a league of our own," Øystein Olsen, the bank's governor, said in a press conference following the announcement.
In its statement announcing the move, the bank said it now believed that Norway was about to go into a longer period of slow growth than it had previously believed.
“Growth in the Norwegian economy is likely to remain low for a longer period than projected earlier owing to the fall in oil prices through summer,” it said. “Oil investment is expected to fall to a further extent than projected [at our previous meeting] in June and lower demand for goods and services from the petroleum sector will reduce activity in other parts of the economy.”
The bank warned that it may have to again lower interest rates further in the coming year, raising the prospect of negative rates like those in neighbouring Sweden and Denmark.
"I had expected a cut in interest rates, but not until November," Øystein Dørum of DNB Markets told Norway's NRK
broadcaster. "I am surprised that they chose to react now, as the krone is very weak, the unemployment rate has not increased, and property prices and credit markets show growth."
"There is little doubt that the central bank is nervous or scared of a much weaker development in Norwegian economy," he added.
The Norwegian krone fell 2.3 percent on the news, falling below the Swedish krona to its lowest level since December.
“Unexpected. Panic mode," Aurelija Augulyte at Nordea Bank told the UK's Financial Times
newspaper. Worst yet, they indicate a 0 per cent rate is possible if financial stability concerns are ignored. What then — QE? The dovish bias is clearly impacted by the Fed and China’s recent data,”