By Simon Miller
The Krone fell sharply this afternoon after Norway unexpectedly cut interest rates by 0.25 percentage points to 1.5%.
Although economists expected Norway to keep rates on hold following a 0.5 percentage point cut in December and a overheating property market, low inflation and the strong currency threatened its economic growth.
"Weak growth prospects abroad and the strong krone are contributing to keeping inflation low and dampening economic growth in Norway, even if activity in some industries in Norway remains buoyant," Norges Bank Governor Oeystein Olsen told reporters.
Olsen said the strong currency alone would warrant further cuts but the bank would stay on hold all year as low interest rates may induce households to take on too much debt.
The crown fell to a one-month low against both the euro and the dollar after the rate cut announcement. Currently, the Krone is at $0.17, €0.13 and £0.11.
Norges Bank also cut its 2012 economic growth forecast for the mainland, which excludes the lucrative oil sector, to 3.25% from 3.75%. But that is still well above the 2.7% recently predicted by both Statistics Norway and the OECD.