OSLO - THE Norwegian central bank announced a surprisingly big cut in its key interest rate on Wednesday, slashing a massive 1.75 points to bring it to 3.0 per cent in a bid to kick-start the economy.
The bank also indicated further rate cuts were expected, predicting an interval of between 2.0 and 3.0 per cent between now and March 2009.
'Since the end of October international and domestic growth prospects have weakened considerably,' the bank's deputy governor Jan Qvigstad said in a statement.
'At the same time, inflation is subsiding faster than expected. An overall assessment suggests that it is appropriate to lower the key policy rate considerably at this juncture,' he said.
The cut is significantly bigger than what was expected. Analysts had anticipated a reduction of about one percentage point, saying the bank would probably wait until the end of January to take more vigorous action.
Norway's centre-left government is expected to present a keenly-awaited economic recovery package at the end of January or early February, just a few months ahead of September 14 legislative elections.
The Scandinavian country - one of the world's leading oil and gas exporters - saw its economy shrink by 0.7 per cent in the third quarter owing to a drop in oil and gas production.
Excluding the oil and gas and shipping sectors, Norway's mainland gross domestic product rose by 0.2 per cent during the quarter.
At the same time, inflation has showed signs of slowing down. In November, prices excluding energy and fiscal variations rose by 2.7 per cent on an annual basis, compared to 3.3 per cent in October.
Norway's central bank has an inflation target of 2.5 per cent.
Wednesday's rate cut followed two previous reductions of 0.5 points each, both announced in October.
Numerous other western countries have also announced drastic rate cuts recently, in some cases to historic lows.
On Tuesday, the US Federal Reserve used up its ammunition on monetary policy by slashing its base lending rate to virtually zero, but pledged further efforts to stimulate credit and revive a moribund economy.
On Dec 4, the European Central Bank, the Bank of England, and Sweden's Riksbank and the Danish central bank also announced sharp rate cuts. -- AFP
