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Norway Cuts Key Rate By 25 Bps

Prior to this rate cut, the central bank last lowered rates in June but hinted at the possibility of further cuts this year.

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Following the rate cut, the krone slid more than 2 percent to 8.46 per dollar, and 2.3 percent against the euro. Professor Hilde C Bjørnland at the Norwegian Business School BI cautioned in newspaper Dagens Næringsliv (DN) on Wednesday that another rate cut would only “fire up” the housing market even more at a time when prices already are extremely high.

LONDON, Sept 24 (Reuters) – The Norwegian crown slumped to a 13-year low against the dollar on Thursday, after the central bank surprisingly cut interest rates to record lows to boost growth in an economy struggling with the falling price of oil, its main export.

“Growth prospects for the Norwegian economy have weakened, and inflation is projected to abate further out”, the governor of Norges Bank, Øystein Olsen, said in a prepared statement. The bank said its rate may fall to 0.59 percent in the third quarter of next year and remain below 1 percent to the end of 2018. The other 12 had all seen the bank keeping its main rate at 1.00 percent.

Norges Bank said Thursday that growth was likely to remain low “for a longer period than projected earlier” because of weak oil prices and that oil investments were expected to fall further.

We don’t expect another rate cut this year, but the risk is certainly tilting in such direction.

“The euro is still a carry currency, so its gains might not last”, said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

The central bank has been caught between the need to cool down a red-hot property market and the need to support the slowing economy.

Investors are looking ahead to a speech from Federal Reserve Chairwoman Janet Yellen at the University of Massachusetts-Amherst.

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After easing policy in June, Olsen signaled as much as a 70 percent chance of another rate cut this autumn in part to weaken the krone and help the non-oil economy. She is due to speak on “Inflation Dynamics and Monetary Policy” at 2100 GMT.

Norwegian Krone Tumbles To 13-Year Low After Central Bank Slashes Interest Rate