The Governor of the Norwegian Central Bank, Øystein Olsen, surprised most experts when he announced that the Bank's Executive Board had decided to reduce the key policy rate by 0.25 percentage point to 1.50 per cent.
Most analysts had expected the key policy rate to remain unchanged.
“The continuing downturn abroad and the strong krone are contributing to keeping inflation low and are weighing on growth in Norway. Against this background, the Executive Board has decided to reduce the key policy rate”, Governor Olsen says.
He says that even though the situation in international financial markets has improved somewhat after the turn of the year, there are prospects of low growth and low interest rates for a long time in most advanced economies. Growth in the Norwegian economy is holding up, but growth projections have been lowered somewhat. The krone is strong and inflation is projected to remain between 1¼ - 1½ percent to the end of the year.
The analyses in Monetary Policy Report 1/12 indicate that it will likely take several years until inflation returns to target.
“The current outlook suggests that the key policy rate may remain low longer than projected earlier. There is a high level of uncertainty regarding economic developments, and we have monetary policy leeway in both directions”, says the Governor.
At its meeting Wednesday, the Executive Board decided that the key policy rate should be in the interval 1-2 percent in the period to the publication of the next Monetary Policy Report on 20 June 2012, unless the Norwegian economy is exposed to new major shocks.