Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Norway c.bank meets, seen cutting rates 50 bps

Published 10/29/2008, 04:18 AM
Updated 10/29/2008, 06:56 AM

By John Acher

OSLO, Oct 29 (Reuters) - Norway's central bank began a policy meeting on Wednesday which is widely expected to agree a half-point cut in interest rates to 4.75 percent to cushion the economy against the global financial crisis.

The bank will announce its decision at 1300 GMT and hold a news conference at 1345 GMT.

A cut would be the second this month by Norges Bank, following a 50 basis points decrease at its extraordinary meeting on Oct. 15 which ended more than three years of tightening.

"The market is pricing in (a reduction of) 50 basis points," said DnB NOR Markets senior analyst Kyrre Aamdal.

Seven out of 11 economists surveyed by Reuters predicted a half-point reduction on Wednesday from 5.25 percent, and two forecast a quarter-point cut, while two expected no change.

When Norges Bank cut interest rates two weeks ago for the first time since March 2004, it said the effects of the international financial crisis on the Norwegian economy would be worse than earlier assumed.

Central bank Governor Svein Gjedrem said then that the bank envisaged a few quarters "with very low, if any growth", and the bank said that the forces fuelling inflation had diminished.

"At the previous meeting, the central bank changed its view substantially on the prospects for economic development ... and the development has got even worse during the last 14 days," Aamdal said.

The bank will also publish a new monetary policy report, an important policy-setting document, on Wednesday and economists expect it to draw a lower trajectory for rates ahead.

Aamdal said DnB NOR expects the policy rate to fall to 3.50 percent by October next year.

A sharp weakening of the Norwegian crown in recent weeks -- it hit all-time lows against the euro last week at around 9.3 to the European currency -- is likely to have caused the bank worries, economists said, as a weak crown spurs inflation.

"Norges Bank cannot ignore the weak crown," Nordea Markets said in a research note on Tuesday, but said nonetheless that would not keep the bank from delivering a 50 basis points cut.

The bank targets core inflation at 2.5 percent but inflation has overshot the target since July.

Even so, the main concern for the central bank, economists said, is to try to grease the wheels of the credit markets, which have seized up due to the global financial turmoil, and to bolster confidence throughout the economy.

A Statistics Norway survey on Tuesday showed that Norwegian industrial confidence fell in the third quarter to its weakest level since early 2003.

Until only recently, the oil-exporting Norwegian economy seemed likely to escape the global turmoil much less hurt than many others. But prospects have grown dimmer since mid-September and oil prices have continued to drop from a July peak. (Reporting by John Acher, editing by Mike Peacock)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.