Norges Bank unanimously decided to cut its benchmark policy rate by 75 bps to 0.25% this morning – a record low for Norway’s economy. The previous cut was announced just a week ago when the central bank reduced its policy rate from 1.5% to 1%. Since then, the Norwegian economy had not been able to pull itself back from worsening conditions while the krone continued to depreciate.
The Norwegian economy has been fighting a crisis on two fronts, the collapse in oil prices, which slashes the value of the country’s exports, along with concerns about the global impact of the coronavirus. Both downside risks to the economy continue to put pressure on NOK’s performance, which ultimately forced the Norges Bank to step in today.
The cut does not come completely unexpected, as yesterday for the first time in more than two decades, the Norges Bank stressed its willingness to intervene in currency markets, after the Norwegian krone experienced its worst sell-off in history. In today’s press release, the central bank stated it will continue to consider measures to ensure that the policy rate passes through to money markets, and does not rule out a further rate cut.
Upon the rate cut announcement, the Norwegian krone pulled back slightly from its historical lows while dollar weakness across the board in today’s session has also helped. As the Federal Reserve has opened a swap line with Norges Bank as well, this may give NOK a nudge in the right direction, counteracting or at least mitigating further depreciation, though further development of oil prices may carry more weight for the single currency. Brent prices have recovered somewhat overnight following reports that Texas is weighing up placing production quotas on its oil fields, while the US government is also exploring diplomatic avenues to quell the oil price war.
EURNOK falls as oil prices recover and Norges Bank further cuts its benchmark policy rate
USDNOK showing similar movements to EURNOK
Brent crude finds support in the production quota news from the US