Norway's interest rate unlikely to go negative

OSLO: The Norwegian central bank's monetary policy committee is unlikely to adopt negative interest rates as a means of stimulating the economy, Deputy Governor Ida Wolden Bache said on Wednesday.

Followings two cuts in March and one in May, Norges Bank's key policy rate stands at zero, down from 1.5% earlier. It has lowered borrowing costs to help cushion the economy from the effects of the COVID-19 pandemic.

"In the current assessment of the outlook and balance of risk, the committee does not envisage cutting rates further," Wolden Bache told an online forum organised by bank UBS.

"In a situation with a very low interest rate and prospects of low resource utilisation in Norway, it would be natural for fiscal policy to take a more active role," she said.

At the same time, she defended Norges Bank's decision in May to cut the key interest rate to 0% from 0.25% previously.

"The economy is in a deep downturn and that warrants an expansionary monetary policy," she said when asked if there were any regrets over going all the way to zero.

European Union outsider Norway fell into a deep recession in the first half of 2020, but fared better than the euro zone or neighbouring Sweden.

Norges Bank's most recent forecast is for its policy rate to start rising in late 2022, although some economists believe a tightening could come sooner to prevent housing prices from soaring.

Updated forecasts from the central bank are due on Sept. 24.