Lower oil prices prompt interest rate cut

In a surprise move, Norway’s central bank has cut its key lending rate as it frets over the impact of the sharp fall in oil prices on the country’s economy. In the first adjustment since March 2012, Norges Bank cut the rate by a quarter of a percentage point to 1.25 percent.

Justifying the move, it said “activity in the petroleum industry is softening”,  as the sharp fall in oil prices over the past few months has raised concerns over the Scandinavian country’s economy, which is highly dependent on its huge oil and gas reserves. In 2013, oil and gas production accounted for 21 percent of Norway’s economy.

Norges Bank said the sharp fall in oil prices “will have spillover effects on the wider economy and unemployment may edge up ahead.”

The rate cut surprised analysts, who said it came earlier than anticipated.

Oil prices have plunged by more than 40 percent since June, in part because of weak global economic growth and a US oil boom that has swelled supply. Last month, OPEC failed to reach agreement on production curbs, mainly because of opposition from Saudi Arabia, and that decision has weighed on prices too.

The new interest rate comes into force immediately.