Norway’s central bank cut its key interest rate to zero, a record low, from 0.25% on Thursday in a surprise move aimed at protecting an economy reeling from the coronavirus crisis, APA reports citing Reuters.
Norges Bank said the Nordic country’s mainland economy, which excludes oil and gas output, is now expected to contract by 5.2% this year, down from a March forecast of 0.4% growth.
“We expect activity in the Norwegian economy to decline by around 5% in 2020, a decline of a magnitude that we have not seen since World War Two,” Governor Oeystein Olsen said after the central bank’s third rate cut in less than two months.
Norges Bank, which most economists polled by Reuters had predicted would keep rates on hold, has rapidly cut the cost of borrowing from 1.5% and forecasts it is likely to stay at zero until the end of 2023.
The central bank, which said it now expects growth of 3.0% in 2021 compared with an earlier forecast of 1.3%, also said it will continue its recently introduced program of extraordinary liquidity lending to banks until the end of August.
The Norwegian government has also offered business loans, tax deferments and spending worth 360 billion crowns ($35 billion) to keep the economy going.
Several banks said they would cut their Norwegian mortgage rates after the Norges Bank move and Danske Bank (DANSKE.CO) reduced its cost of borrowing by up to 0.4 percentage point.
“Activity in the economy is expected to pick up as containment measures are eased. But it will likely take time for output and employment to return to the levels prevailing before the pandemic,” Olsen told a news conference.
Norway invoked emergency powers to restrict travel and shut many public and private institutions, although steps are now being taken to gradually re-open.
However, April unemployment rose to more than 15%, its highest-ever level as firms laid off staff, data from Norway’s Labour and Welfare Agency (NAV) show.