Norges Bank has cut its key rate by 0.5% to 1% simultaneously warning of an economic shock in the near term as businesses react to the impact of Coronavirus.
"Many firms are feeling the negative effects. Layoff notices have already been issued, and unemployment is expected to rise. Economic prospects have also weakened on the back of the sharp fall in oil prices," the bank said in a statement.
Its Monetary Policy and Financial Stability Committee further added that it continues to monitor the situation and could yet cut rates further.
Norway's economy is particularly affected by the downturn in sectors such as energy and offshore services, and shipping and shipping services; with the global oil price falling to record low levels in the wake of a price war between Saudi Arabia and Russia, and with global trade patterns including shipping being hard hit by the earlier downturn in China. The Baltic Dry index, a proxy for global shipping, particularly dry bulk, is down about 42% since the start of 2020.
Norges Bank has also announced it will offer extraordinary 3-month NOK F-loans starting from 13 March, and will continue to do so "as long as is deemed appropriate"
"The loans are being offered to ensure that the policy rate passes through to money market rates," the bank said.
It has also urged the Ministry of Finance to cut the countercyclical capital buffer requirement on banks from 2.5% to 1%, with immediate effect. The Ministry has done so. Norges Bank said that local banks are "solid" with "sufficient capital to absorb losses in the event of a severe downturn."
"However, tighter lending standards could amplify an economic downturn. A reduction in the countercyclical capital buffer can counteract a tightening of banks' lending standards."