- Since the end of October international and domestic growth prospects have weakened considerably. 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. The credibility of the inflation target now makes it possible to use monetary policy actively to dampen the impact of the financial crisis on the Norwegian economy, says Deputy Governor Jan F. Qvigstad.

The world economy is experiencing a pronounced cyclical downturn. Key policy rates have been lowered substantially abroad. Oil prices have continued to fall. It appears that economic growth in Norway will also be markedly lower than anticipated in October. According to new information from Norges Bank’s regional network, production and employment are expected to fall in the coming quarters.

Inflation is moving down. On the other hand, the krone exchange rate has been weaker than expected. The low value of the krone is helping to mitigate the effects of the international downturn on the Norwegian economy.

 - The risk of a pronounced downturn in the Norwegian economy has increased. At the same time, the risk that inflation will become too high ahead has been reduced. The dual consideration of stabilising inflation around the inflation target and stabilising developments in output and employment suggests a markedly lower interest rate, says Deputy Governor Jan F. Qvigstad.

For further information, see "The Executive Board’s monetary policy decision – background and general assessment” and ”New interest rate projections” attached to the press release.

• Background material