– The effects of the financial crisis will most likely be more pronounced than envisaged only recently. The slowdown in the Norwegian economy appears to be occurring rapidly and is likely to be pronounced, says Governor Svein Gjedrem.

Prices have increased markedly since autumn 2007, but the outlook suggests that inflation may edge down ahead. The key policy rate forecast has been lowered. The Executive Board’s strategy is that the key policy rate should lie in the interval 4% – 5% in the period to the publication of the next Monetary Policy Report on 25 March 2009, unless the economy is exposed to new major shocks.

The krone exchange rate has depreciated substantially. Should the krone remain weak for a long period, inflation may remain high. Norges Bank is closely monitoring developments in the krone exchange rate.

– There is now unusually high uncertainty surrounding economic developments ahead. An overall assessment of the outlook and the balance of risks suggests that it is now appropriate to reduce the key policy rate by 0.50 percentage point. Weight is given to moving forward the reduction in the key policy rate so that lending rates for households and businesses can gradually be reduced. As an alternative, the Executive Board considered reducing the key policy rate by 0.25 percentage point, says Governor Svein Gjedrem.

For more information, see “The Executive Board’s monetary policy decision – background and general assessment”. 

• Charts and background material