Norway's Central Bank Slashes Rates, Warns of Recession

By: Victoria_Marklew

Norway's central bank today slashed its sight deposit rate by a record 175 bps, taking it to 3.0%. Stating that the risk of a "pronounced downturn" in the economy has increased, Norges Bank warned that real GDP is likely to contract in Q4 2008 and again in Q1 2009 - a marked contrast to its forecast of continued growth made just two months ago.

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Noting that inflation is likely to fall below the 2.5% target over the course of 2009, the bank also lowered its policy rate projections. It now anticipates the deposit rate being in a range of 2.0-3.0% by late March, and bottoming out at 1.95% in December 2009.

With recent data confirming a sharp slowdown in activity, along with fast-falling business and consumer confidence, Norges Bank looks set to lop at least another 50bps off its sight deposit rate at the next scheduled policy meeting on February 4. This expectation is likely to keep the Norwegian crown at record lows against the euro over the coming weeks.

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By Victoria Marklew
The Northern Trust Company
Economic Research Department - Daily Global Commentary

Victoria Marklew is Vice President and International Economist at The Northern Trust Company, Chicago. She joined the Bank in 1991, and works in the Economic Research Department, where she assesses country lending and investment risk, focusing in particular on Asia. Ms. Marklew has a B.A. degree from the University of London, an M.Sc. from the London School of Economics, and a Ph.D. in Political Economy from the University of Pennsylvania. She is the author of Cash, Crisis, and Corporate Governance: The Role of National Financial Systems in Industrial Restructuring (University of Michigan Press, 1995).

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

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