The Norwegian central bank cut its main interest rate by 25 basis points to 0.5%, a record low.
Norges Bank also did not rule out further cuts, nor the possibility that interest rates could move into negative territory. The new rate is effective Friday.
“Growth prospects for the Norwegian economy have weakened somewhat and inflation is expected to moderate further out,” said Oystein Olsen, central bank governor, in a news release Thursday. “The board has therefore decided to lower the key policy rate.”
The release noted that global growth is set to be lower than expected, and that interest rates outside Norway have fallen. The Norwegian economy has been weaker than forecast and unemployment in the country is expected to “edge up.”
Depreciation in the Norwegian kroner has also increased consumer price inflation, but as the effects of this depreciation unwind, Norges Bank said inflation will also “drift down.”
“The current outlook for the Norwegian economy suggests that the key policy rate may be reduced further in the course of the year,” said Mr. Olsen.
The central bank warned that lower interest rates could increase financial system vulnerabilities, and that the uncertainty surrounding the effects of monetary policy increases as rates move lower. “This now suggests proceeding with greater caution in interest rate setting. 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 release.