Norway’s central bank unexpectedly cut its key interest rate Thursday to an all-time low, sending the Norwegian krone tumbling. After the Oslo-based Norges Bank slashed its deposit rate by 25 basis points to 0.75 percent -- citing a fall in investments triggered by a steady decline in oil prices -- the country’s currency fell to its weakest level in more than 13 years against the dollar, Bloomberg reported.
Following the rate cut, the krone slid more than 2 percent to 8.46 per dollar, and 2.3 percent against the euro.
“Growth prospects for the Norwegian economy have weakened, and inflation is projected to abate further out,” central bank Governor Oeystein Olsen said in a statement announcing the rate cut, adding that lower demand for goods and services from the energy sector would hit other parts of the economy and increase unemployment.
However, a weaker krone would push inflation -- which stood at 2.9 percent in August -- even higher in the short term.
“They [the central bank] cut the rate and are now saying that most likely there will be another cut before Christmas and most likely another cut in 2016,” Frank Jullum, chief economist at Danske Bank Markets, told the New York Times. “This was even more negative compared to what we had expected.”
Almost half of Norway’s exports are related to petroleum. As a result, the recent plunge in crude prices has hit the country hard.
In the second quarter, Norway’s exports fell 0.1 percent, while petroleum and shipping industry output declined 1 percent. Norway’s GDP also rose only 0.2 percent in the second quarter, falling slightly from a 0.3 percent rise in the previous quarter.
In order to cut costs, oil companies, including the state-controlled Statoil ASA, have reportedly cut more than 35,000 jobs, pushing the unemployment rate to 4.3 percent in May -- its highest level in about a decade.