MNI POLICY: Norges Bank Cuts Key Rate To 1.0%: Text

     LONDON (MNI) - The Norwegian central bank cuts the rate by 50 bps to 1.0%.

The text of the announcement follows:

     Norges Bank reduces the policy rate, provides liquidity and advises the

Ministry of Finance to reduce the countercyclical capital buffer Norway is

contending with the outbreak of coronavirus (Covid-19). The most important

measures to address the consequences of the outbreak are those that limit

contagion and save lives.

     Norges Bank's mission is to promote economic stability. We do so by

ensuring robust and efficient payment systems and financial markets and by

adjusting the interest rate level to the economic situation.

     Policy rate reduced by 0.50 percentage point to 1 percent In the near term,

activity in the Norwegian economy will decline considerably owing to the

coronavirus outbreak. 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.

     At an extraordinary meeting on 12 March, Norges Bank's Monetary Policy and

Financial Stability Committee voted unanimously to reduce the policy rate by

0.50 percentage point to 1.00 percent. There is considerable uncertainty about

the duration and impact of the coronavirus outbreak, with a risk of a pronounced

economic downturn. The Committee is monitoring developments closely and is

prepared to make further rate cuts.

     A lower policy rate cannot prevent the coronavirus outbreak from having a

substantial impact on the Norwegian economy, but it could dampen the downturn

and mitigate the risk of more persistent effects on output and employment.

     See Monetary Policy Report 1/20

     Extraordinary F-loans to banks In recent weeks there has been substantial

volatility in financial markets. Risk premiums in the Norwegian money market

have risen sharply. In order to ensure that the policy rate passes through to

money market rates, Norges Bank offers extraordinary three-month F-loans for as

long as deemed necessary. The F-loans will be fully allotted at an interest rate

equal to the prevailing policy rate.

     See press release on F-loans

     Countercyclical capital buffer should be reduced to 1 percent Norges Bank

has advised the Ministry of Finance to reduce the countercyclical capital buffer

for banks from 2.5 to 1 percent, with immediate effect. The Ministry of Finance

has today decided to follow Norges Bank's advice.

     Norwegian banks are solid. They have 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.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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