Norges Bank Says Rate Outlook Would Darken If Virus Hits Trade

(Bloomberg) -- The governor of Norway’s central bank, Oystein Olsen, said a “significant” slump in trade triggered by the coronavirus might force him to reassess the outlook for interest rates in Scandinavia’s richest economy.

Speaking in an interview in Oslo late on Tuesday, Olsen said Norges Bank is monitoring the situation “very closely.”

“The development we’ve seen in the global economy and the impact in the wake of the virus is one of the most marked changes in the economic picture since December,” when Norges Bank last published a complete set of economic forecasts, he said.

Norges Bank hasn’t had to resort to the kind of extreme stimulus measures that its peers have delivered, due to Norway’s vast oil wealth. The country, which boasts the world’s biggest sovereign wealth fund, has even been able to pump some fiscal stimulus into the economy, setting Norway apart from most other European nations.

Norway shelved a yearlong hiking cycle in September, citing the uncertain outlook for global trade. At the country’s biggest bank DNB ASA, chief economist Kjersti Haugland says Norges Bank is unlikely to cut rates this year. Other analysts disagree. At Goldman Sachs Group Inc., economists predict 50 basis points of cuts from Norway this year.

Olsen spoke shortly before the Federal Reserve delivered an emergency half-point interest-rate cut on Tuesday that failed to restore calm. In Sweden, a Riksbank board member said monetary policy was the wrong way to address the economic risks posed by the coronavirus.

Olsen underscored that Norway’s economy is characterized by a number of “distinctive features” that might shape its response to crises. He also pointed to the exchange rate, and suggested that the weak krone adds to the list of parameters policy makers need to take into account.

“If it’s the case that growth especially in our trade partners drops significantly, that’s in isolation something that pulls down on the rate outlook,” Olsen said. “But there’s a lot of other information. The krone rate is weak, and other things on the upside as well”

Norges Bank’s next rate decision will be announced on March 19, along with its first monetary policy report since December that will include a fresh outlook for the economy and the rate path.

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