March 20, 2020 / 7:46 AM / 10 days ago

UPDATE 3-Norway's central bank cuts rates to record low to curb virus's effects

* Cuts key policy rate to record low 0.25% from 1.0%

* Cut of 75 basis points follows 50-point cut last week

* Central Bank says it may cut again

* Negative rates also possible, economist says (Adds analyst, funding for banks)

By Terje Solsvik and Victoria Klesty

OSLO, March 20 (Reuters) - Norway’s central bank cut its key policy rate to a record-low 0.25% from 1.0% on Friday in a bid to alleviate the economic impact from the coronavirus outbreak, and may reduce rates further.

It was Norges Bank’s second abrupt rate announcement triggered by the virus, following a half-point cut on March 13, when Governor Oeystein Olsen said the Norwegian economy was in a state of emergency.

“Since Norges Bank cut the policy rate last week, the situation in the Norwegian economy has continued to worsen,” the central bank said in a statement announcing the unanimous decision of its monetary policy committee.

“Norges Bank will continually consider measures to ensure that the policy rate passes through to money market rates. The Committee does not rule out a further rate cut,” it added.

In a separate statement, Norges Bank also offered a third batch of extraordinary loans to the banking industry to ensure it has enough for the months ahead.

The crown currency, which has weakened sharply this year from the twin impact of the virus and a crash in oil prices, weakened against the euro to trade at 11.87 at 0835 GMT from 11.79 just ahead of the 0730 GMT rate announcement.

“We still expect Norges Bank to reduce its key rate further down to zero in the weeks ahead,” Nordea Markets wrote in a note to clients.

Economists at DNB Markets and Handelsbanken Capital Markets also said rates were likely to fall further.

“We believe the seriousness of the situation now will become clearer as more data come in, and we therefore expect Norges Bank will have to cut the policy rate to zero by the end of Q2 at the latest,” Handelsbanken wrote.

In addition to rate cuts, Norges Bank has launched a series of emergency measures to help stabilise markets, including a warning that it may intervene in the currency for the first time in more than two decades.

“Negative interest rates may also come to Norway,” DNB Markets Chief Economist Kjersti Haugland tweeted.

The Norwegian government has invoked emergency powers to close a wide range of public and private institutions and warned against foreign travel, while the central bank pumped money into banks.

Parliament approved extraordinary fiscal spending to back companies and those left unemployed, and the government said more plans were being developed as it sought to avert a wave of bankruptcies.

The lockdown on economic activity has brought a surge in temporary layoffs, however, and thus a sharp rise in unemployment. (Additional reporting by Nerijus Adomaitis; Editing by Kevin Liffey, Larry King)

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