Norway's central bank cut its key policy rate by 25 basis points to 1.00 percent, as expected, an said it may cut the rate further in the second half of the year due to an economic outlook that has "deteriorated somewhat."
Norges Bank, which in May said it expected to cut the rate today, said the Norwegian economy had developed slightly weaker than expected, with wage growth lower than forecast and growth expected to remain weak over the next six months.
Weighing the path of monetary policy ahead, the central bank's executive board considered that growth prospects and the forces driving inflation, such as lower wage growth, had weakened and this implied a lower policy rate.
However, the board added that a lower interest rate "may fuel house price inflation and debt growth,"noting that house prices had risen at a slower pace than expected but household debt had still continued to rise.
In response, the central bank recommended that Norway's finance ministry raise the countercyclical capital buffer for banks to 1.5 percent from June 30, 2016 from 1.0 percent that will take effect on June 30 this year. The finance ministry endorsed the bank's assessment.
In its latest monetary policy report, Norges Bank said the impact of lower oil prices and weaker demand from the petroleum industry appeared to be "somewhat more pronounced" than previously assumed, implying a key policy rate forecast of a little higher than 0.75 percent in the coming year, followed by a gradual rise in the rate.
Norway's inflation rate rose to 2.1 percent in May from 2.0 percent in April, slightly below the central bank's target of 2.5 percent.
Norges Bank issued the following statement: