Norway’s central bank cut its key interest rate to 1% from 1.5% Friday, in a surprise announcement, as it seeks to counter the economic impact of the coronavirus pandemic.
The Norges Bank said it was “monitoring developments closely” and was prepared to cut rates further if necessary. Its next monetary policy decision is due on March 19.
The central bank also said it would offer funding to banks to help counter the volatility in financial markets in recent weeks. Its extraordinary three-month loans to the banking industry were being offered “in order to ensure that the policy rate passes through to money market rates.”
The move comes after the Bank of England announced an emergency reduction in interest rates on Wednesday, and the U.S. Federal Reserve surprised markets by cutting rates last week.
On Thursday, the European Central Bank (ECB) opted not to cut rates, instead announcing stimulus to fight the coronavirus impact. The ECB’s main interest rate currently stands at -0.5% and analysts said that its toolkit is more constrained given that its rates are already in negative territory.
In a statement, the Norges Bank said that economic activity in the country was expected to decline considerably because of the outbreak.
“There is considerable uncertainty about the duration and impact of the coronavirus outbreak, with a risk of a pronounced economic downturn,” it said. “The Committee is monitoring developments closely and is prepared to make further rate cuts.”
It also announced that banks’ so-called countercyclical capital buffer would be reduced from 2.5% to 1%, to help banks continue to lend money.
Norges Bank has advised the Ministry of Finance to reduce the countercyclical capital buffer for banks from 2.5 to 1 percent, with immediate effect. The Ministry of Finance has today decided to follow Norges Bank’s advice.
Norway currently has at least 700 confirmed cases of the virus, according to figures from Johns Hopkins University. The coronavirus has now infected more than 128,000 people worldwide, with 4,720 deaths.