Norway Rates Held at Record Low as Oil Slump Pummels Growth

Norway Central Bank Keeps Key Rate at 0.75%
  • Decision expected by 16 of 17 economists in Bloomberg survey
  • Krone `relief rally' no trigger for appreciation: Danske

Norway’s central bank kept its main interest rate at a record low as oil prices below $50 risk dragging western Europe’s biggest crude producer into a recession.

The overnight deposit rate was kept at 0.75 percent, the Oslo-based bank said on Thursday. The decision was forecast by 16 of 17 economists in a Bloomberg survey, while one saw a cut. The krone climbed 0.7 percent to 9.30 per euro as of 11:47 a.m. local time.

The krone experienced a “relief rally as some had expected a clear hint of a December cut,” said Kristoffer Kjaer Lomholt, an analyst at Danske Bank. “This is not a trigger for krone appreciation.”

Policy makers, who unexpectedly cut rates in September, said the oil-dependent economy is slowing more than anticipated despite a weak krone and government stimulus. The bank didn’t provide any update to its September signal that it anticipates rates will be further reduced in “the coming year.”

Since that meeting, news has come in "on both sides as regard to interest rate decisions," so keeping them unchanged was "not a difficult decision" to take, Governor Oeystein Olsen said in an interview.  

"The effects of the fall in oil prices and decline in oil investment are gradually becoming evident, especially in regions closely linked to the oil industry,” Norges Bank said in a statement. The bank had not discussed cutting rates and would come back with a new rate outlook in December, Olsen said.

Chart of Norwegian deposit rates
Chart of Norwegian deposit rates

Policy makers are trying to steer the economy through a 43 percent drop in Brent crude in the last year. The bank is weighing policy choices in an environment of extreme easing from some the world’s biggest central banks. The European Central Bank started buying debt to add to stimulus, while policy makers in neighboring Sweden and Denmark have cut rates below zero.

While the oil price drop has spurred talk of recessionary risks in Norway, policy makers aren’t facing the disinflationary spiral that has hit Sweden and other parts of Europe. Underlying consumer prices gained 3.1 percent in September.

“Developments are confirming that the oil-induced slowdown is continuing,” Kjersti Haugland, an analyst at DNB ASA in Oslo, said before the rate decision. She sees Norges Bank being “aggressive” with rate cuts and predicts more easing in December.

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