Norges Bank, which cut interest rates by 50 basis points on Wednesday to 4.75 percent, has been injecting hefty doses of liquidity

Liquidity management has grabbed the lead role from interest rate policy internationally as central banks grapple with the global financial crisis, a Norwegian central banker said on Thursday.
Norges Bank, which cut interest rates by 50 basis points on Wednesday to 4.75 percent, has been injecting hefty doses of liquidity into the Norwegian financial system almost daily as interbank lending has dried up in the crisis.
Those money market operations are central to what Norges Bank says is a more active than usual policy approach that it will pursue for the time being to keep the system functioning.
"For a long time central banks have focused predominantly on their interest rate policy," Deputy Governor Jan Qvigstad said in the text of a speech to a conference in Geneva.
Considerably less attention has been paid to liquidity policy "which used to be carried out somewhere in the basement of the monetary policy temple, far away from the spotlight of the announcement of interest rate decisions", he said.
"This year, liquidity policy has moved into the spotlight and has taken over the lead role at the forefront of the monetary policy scene," Qvigstad said in a speech focused on the history of monetary policymaking.
The current situation, he said, also highlights the close interaction between price stability and financial stability and the focus of policymakers today on "crisis management".
"The challenge in the coming months and year is to pursue a dual approach consisting of short-term action and long-term solutions," he said.
"We must constantly be on the alert to put out fires when and where they emerge," he said, adding that central banks must also find the right long-term remedies in the form of new rules and systems to avoid repeating the same mistakes.