Norway cuts interest rate to record low 1.25 percent

Norway cut its key interest rate Wednesday by a quarter-point to a record low 1.25 percent, as the central bank said it saw no quick end to the economic crisis that has pushed the oil-rich country into a deeper recession than expected. "Uncertainty with regard to developments ahead is still high. So far, the fall in global activity has been more pronounced than expected," the bank's deputy governor, Jan Qvigstad said in a statement, explaining the bank's seventh rate cut since October.
The interest rate is now at its lowest level since the central bank gained its independence in 1983. A majority of economists had expected the bank to keep the interest rate unchanged amid signs that the Norwegian economy, which has been relatively spared from the crisis thanks to its oil wealth, was beginning to see a recovery.
Household consumption, property prices and inflation have recently bounced back, with oil prices on the rise and oil sector investments looking promising in the Scandinavian country, one of the world's biggest exporters of black gold.
But the central bank focused on the continued deterioration in global momentum and revised downward its growth forecast, predicting the Norwegian economy would contract by 1.5 percent this year compared to the 1.0 percent foreseen in March. The figures concern Norway's mainland gross domestic product (GDP), which excludes the oil and gas sectors and the shipping industry. It is considered a better indicator of the country's economic health, since the oil and gas sector represents 25 percent of its economic growth but employs only about one percent of its working-age population.
While analysts had expected the central bank to soon begin raising its rates, the bank suggested it saw things differently and may even lower them further. "The key policy rate can remain close to 1.0 percent for a period ahead," it said.
"The global economic downturn continues. Activity is also contracting in Norway and unemployment is rising," it added. Unemployment remains relatively low in Norway compared to other western countries but has risen sharply in recent months and was at 2.6 percent in May.