Norway cuts rates in surprise announcement

Norway's central bank made an unexpected cut in its key policy rate to 1% from 1.5% to counter the economic impact from the coronavirus pandemic, adding that it was prepared to make further cuts.

"There is considerable uncertainty about the duration and impact of the coronavirus outbreak, with a risk of a pronounced economic downturn," the bank's monetary policy committee said in a statement.

“In the near term, activity in the Norwegian economy will decline considerably owing to the coronavirus outbreak. Many firms are feeling the negative effects. Layoff notices have already been issued, and unemployment is expected to rise. Economic prospects have also weakened on the back of the sharp fall in oil prices.”

The countercyclical buffer of the banking industry will also be cut, to 1.0% from 2.5%, making it easier for banks to keep lending, the central bank said.

“Norwegian banks are solid. They have sufficient capital to absorb losses in the event of a severe downturn. However, tighter lending standards could amplify an economic downturn. A reduction in the countercyclical capital buffer can counteract a tightening of banks’ lending standards,” the bank said.