The Pound Sterling to Norwegian Krone (GBP/NOK) exchange rate soared to a 6-year high on Thursday after the Norwegian central bank shocked economists by cutting its main interest rate for the first time in more than two years as tumbling oil prices threaten the national economy.
The Norges Bank cut interest rates by 25 basis points to 1.25%, a level not seen since 2009 as the country’s economy continues to be battered by falling oil prices. As one of the world’s major oil producers the declines in oil prices are threatening economic growth in the Scandinavian nation. A weakening Eurozone is also proving to be a drag.
‘The rate cut is justified as the outlook for the Norwegian economy being notably weaker than envisaged earlier amid the sharp falls in oil prices. The Norges bank attaches importance to countering the risk of a pronounced downturn in the Norwegian economy,’ said Oystein Olsen, the central bank’s governor.
Norwegian Krone Falls to Lowest Level since 2008 against the US Dollar
After rates were cut, the Norwegian Krone tumbled to its lowest level since December 2008 against the US Dollar and fell heavily against all of its most traded peers.
Falling oil prices also caused the Norges bank to cut its growth forecasts for the country. Last week it cut its estimate for growth next year from 2.1% to 1%.
‘Growth prospects for the Norwegian economy have weakened. Activity in the petroleum industry is softening and the sharp fall in oil prices is likely to amplify this tendency. This will have spill over effects on the wider economy and unemployment may edge up ahead. At the same time, the Krone has depreciated markedly, which is helping to dampen the effects on the Norwegian economy and underpin inflation,’ said Norges bank in a statement.
