Norges Bank
Executive Board meeting
15 August 2007
1
Norges Bank
Growth forecasts Consensus Forecasts
GDP. Percentage change on previous year
2008
2007
9
9
8
Forecasts June
7
Forecasts July
8
Forecasts June
7
Forecasts July
6
6
5
5
4
4
3
3
2
2
1
1
0
World
North Western Japan
America Europe
Asia Eastern Latin
excl. Europe America
Japan
0
World
North Western Japan
America Europe
Asia Eastern Latin
excl. Europe America
Japan
Source: Consensus Forecasts
Norges Bank
House prices1) and housing starts in the US
Seasonally adjusted. 12-month rise2). January 2003 – June 2007
20
20
New dwellings
15
Existing dwellings
15
10
10
5
5
0
0
-5
-5
-10
-10
-15
-15
-20
-20
-25
-30
1) Median
price for dwellings.
2) 3-month moving average.
-35
2003
-25
Housing starts
-30
-35
2004
2005
2006
2007
Sources: Reuters (EcoWin) and Norges Bank 3
Norges Bank
Equities
Indices,1 November 2006 = 100. 1 November 2006 – 14 August 2007
140
140
Euro area
130
130
120
110
120
Norway
Emerging
economies
US
110
Japan
100
90
Nov 06
100
90
Jan 07
Mar 07
May 07
Jul 07
Source: Reuters (EcoWin)
4
Norges Bank
Implied volatility from equity options
Per cent. 1 January 2006 – 13 August 2007
40
40
Norway
30
30
20
20
10
10
US
Europe
0
Jan 06
0
Apr 06
Jul 06
Oct 06
Jan 07
Apr 07
Jul 07
Sources: Reuters (Ecowin) and Oslo Stock Exchange 5
Norges Bank
Credit premium on BBB-rated corporate bonds
5-year maturity. Percentage points. 1 January 2004 –13 August 2007
2.0
2.0
1.8
1.8
1.5
1.5
1.3
1.3
US
1.0
1.0
0.8
0.8
Europe
0.5
0.5
0.3
0.3
0.0
0.0
Jan 04
Jul 04
Jan 05
Jul 05
Jan 06
Jul 06
Jan 07
Jul 07
Source: Reuters (EcoWin)
6
Norges Bank
Credit spreads on bonds secured on subprime loans and ordinary mortgage loans
Basis points. 19 January 2006 – 13 August 2007
2500
2500
Subprime 2007 H1, BBB-
2000
2000
1500
1500
1000
500
1000
Subprime 2006 H2, BBB-
Subprime 2006 H1, BBB-
0
Jan 06
MBS (mortgage bonds),
BBB-
500
0
May 06
Sep 06
Jan 07
May 07
Source: Lehman Brothers
7
Norges Bank
Price of hedging credit risk. 5-year CDS prices
Basis points. 1 July 2005 –13 August 2007
60
60
50
50
40
40
30
30
European banks
(Itraxx index)
20
10
20
10
DnB NOR
0
Jul 05
0
Nov 05
Mar 06
Jul 06
Nov 06
Mar 07
Jul 07
Sources: Bloomberg and Thomson Datastream
8
Norges Bank
Price of hedging credit risk. 5-year CDS prices
Basis points. 3 October 2005 – 10 August 2007
400
80
350
70
300
Norske Skog
(left-hand scale)
250
200
60
50
40
Telenor
150
30
100
20
Hydro
50
10
Statoil
0
Oct 05 Jan 06 Apr 06
0
Jul 06
Oct 06 Jan 07 Apr 07
Jul 07
Source: Thomson Datastream
9
Supply of liquidity from various central banks
Central bank
ECB
Federal Reserve
Bank of Canada
Bank of Japan
The Reserve
Bank of Australia
Date
Amount
supplied in
local currency
Comment:
9 August
EUR 94.8bn
4.0 per cent
(fixed-rate loan)
Largest single injection ever. ECB promised full
allotment.
10 August
EUR 61.05bn
4.08 per cent
(average)
Variable interest rate. Average interest rate on allotment
of 4.08 per cent.
13 August
EUR 47.67bn
4.07 per cent
(average)
Variable interest rate. Average interest rate on allotment
of 4.07 per cent.
9 August
USD 12bn
+ USD 12bn
From 5.187 to
First amount supplied as a 14-day repo. Second amount
was an ordinary O/N repo. According to the Financial
Times, this is about twice as much as normal.
10 August
USD 38bn
5.236 (19bn)
5.266 (16bn)
5,127 (3bn)
Three different repo tranches in the course of the
weekend. Largest injection since the days following 11
September 2001.
9 and 10 August
CAD 1.69bn
10 August
JPY 1000bn
0.553 per cent
(average)
O/N
13 August
JPY 600bn
0.609 per cent
(average)
1-week repo
10 August
AUD 4.95bn
9 –13 August
Swiss National
Bank
Norges Bank
Interest rate
Norges Bank
9 August
NOK 45bn
5.33 per cent
Twice the normal amount.
2.6 per cent
(overnight) and
2.43 per cent
(1-week)
Has supplied a fair amount of liquidity. Reuters estimates
the injection on Thursday 9 August at CHF 2-3bn.
4.61 per cent
Ordinary F-loan auction with allotment rate of 4.61 per
cent.
Norges Bank
Key policy rates and forward rates
As at previous monetary policy meeting and as at 13 August 2007
6
6
US
5
5
Norway
4
4
Euro area
3
3
13 August 2007
Market after MPR 2/07
(27 June)
2
1
Jan 05
2
1
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Sources: Reuters (EcoWin), Bloomberg and Norges Bank
11
Norges Bank
3-month interest rate differential
and import-weighted exchange rate (I-44)1)
January 2002 – December 2010
85
5
I-44
(left-hand scale)
88
4
Average 1 – 13
August 2007
91
3
94
2
13 August 2007
97
100
103
1
Weighted interest
rate differential
(right-hand scale)
2002
1)
Previous monetary
policy meeting
(27 June 2007)
2003
2004
0
-1
2005
2006
2007
2008
2009
2010
A rising curve denotes an appreciation of the krone.
Sources: Bloomberg, Reuters (EcoWin) and Norges Bank 12
Norges Bank
Petroleum production in Norway
January 2000 – May 2007
In million barrels
per day
Per cent
10
4.0
8
6
3.5
Annual growth in total
petroleum production
(right-hand scale)
3.0
Crude oil production
(left-hand scale)
4
2
0
-2
2.5
-4
-6
2.0
2000
2001
2002
2003
2004
2005
2006
2007
Source: Norwegian Petroleum Directorate
Norges Bank
Oil price Brent Blend and futures prices
USD per barrel. 3. January 2002 -13 August 2007
90
90
80
Previous monetary policy
meeting (26 June)
70
80
70
13 August 2007
60
60
50
50
40
40
30
30
20
20
10
10
2002
2003
2004
2005
2006
2007
2008
2009
Sources: Telerate, IPE and Norges Bank
14
Norges Bank
Average prices for crude oil and natural gas
Gas price
USD/1000 Sm3
1997 Q1 – 2007 Q31)
Oil price
USD per barrel
500
80
Weighted average gas price
Statoil/Hydro (left-hand scale)
400
60
50
300
200
70
40
Brent Blend, USD/barrel
(right-hand scale)1)
30
20
100
Gas price UK (left-hand scale)1)
Norwegian gas (left-hand scale)
0
10
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
1)Average
daily figures to date in 2007 Q3.
Sources: Reuters (EcoWin), Statistics Norway, Statoil, Norsk Hydro and Norges Bank
15
Norges Bank
Various inflation indicators
12-month change. Per cent. January 2002 – July 2007
6
6
5
5
CPI
4
4
Weighted median
3
3
2
2
1
0
1
CPI-ATE
0
20 per cent trimmed mean
-1
-1
-2
2002
-2
2003
2004
2005
2006
2007
Source: Statistics Norway
16
Norges Bank
CPI-ATE1)
Total and by supplier sector. Projections MPR 2/07
12-month rise. Per cent. July 2003 – July 2007
3
3
Goods and services produced in Norway (0.7)2)
2
2
1
1
CPI-ATE
0
0
-1
-1
Imported consumer goods (0.3)2)
-2
-2
-3
-3
1) A
further adjustment is made for the estimated effect
of new maximum day-care rates in 2006.
2) Norges Bank's projections.
-4
-5
Jul 03
Jan 04
Jul 04
Jan 05
Jul 05
Jan 06
Jul 06
Jan 07
-4
-5
Jul 07
Sources: Statistics Norway and Norges Bank
17
Norges Bank
Labour market
Employment
Unemployment
In 1000s
Per cent. Seasonally adjusted.
6
2460
2430
QNA
LFS unemployment
2400
4
2370
2340
2310
2280
Registered unemployed
2
LFS1)
2250
2220
1999 2001 2003 2005 2007
1)
0
1999 2001 2003 2005 2007
The changes to the LFS have resulted in a break in the time series between 2005 and 2006.
Sources: Statistics Norway and Norwegian Labour and Welfare Organisation (NAV)
18
Norges Bank
Manufacturing output index
Volume index. Seasonally adjusted 3-month moving average and trend
112
112
Trend
108
108
104
104
100
3-month moving average
100
96
96
92
92
2002
2003
2004
2005
2006
2007
Source: Statistics Norway
Norges Bank
Capacity utilisation in manufacturing Business tendency survey
Per cent. 1983 Q1 – 2007 Q2
88
88
86
86
84
84
82
82
80
80
78
78
76
76
1983
1986
1989
1992
1995
1998
2001
2004
2007
Source: Statistics Norway
21
Norges Bank
Enterprise sector credit1) and liquid assets2)
12-month growth. Per cent. January 2000 – June 2007 (C3 to April)
40
40
Money supply (M2)
35
35
30
30
Total credit (C3)
25
25
20
20
15
15
10
10
5
5
0
0
-5
-5
2000
1) Mainland
2001
2002
non-financial enterprises (C3).
enterprises' liquid assets (M2).
2) Non-financial
2003
2004
2005
2006
2007
Source: Statistics Norway
22
Norges Bank
Retail sales index and index of commodity
consumption
170
Volume. Seasonally adjusted. January 2000 – June 2007
160
160
150
170
Index of commodity consumption
150
140
140
130
130
120
120
110
Retail sales index
110
100
100
90
90
80
80
70
70
Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07
Sources: Statistics Norway and Norges Bank
Norges Bank
House prices, household debt and the money supply
Change on same month/quarter previous year. Per cent
January 2001 – July 2007 (C2 and M2 June)
25
House prices
14
Debt and money supply
12
20
C2
Real estate business
10
15
8
10
6
5
Statistics Norway
4
0
M2
2
-5
2001 2002 2003 2004 2005 2006 2007
0
2001 2002 2003 2004 2005 2006 2007
Sources: Norwegian Association of Real Estate Agents, Association of Real Estate
Agency Firms, Finn.no, ECON, Statistics Norway and Norges Bank
24
Norges Bank
Household saving ratio and net lending as a
share of disposable income1, 2)
1980 – 2006
10
10
Saving
5
5
0
0
Net lending
-5
-5
-10
-10
1)
There is a break in the series between 1995 and 1996.
for estimated reinvested share dividends for 2000 – 2005.
2) Adjusted
-15
1980
1985
1990
1995
2000
-15
2005
Sources: Statistics Norway and Norges Bank
Norges Bank
Projections in Monetary Policy Report 2/07
Per cent. 2005 Q1 – 2010 Q4
9
8
Key policy rate
7
6
5
4
3
2
1
0
2005 2006 2007
9
8
7
6
5
4
3
2
1
0
2008
2009
2010
30%
4
4
Output gap
50%
3
70%
2
2
90%
1
1
0
0
-1
-1
-2
2005
-2
2006
3
2007
2008
2009
2010
4
4
4
CPI
4
CPI-ATE
3
3
3
3
2
2
2
2
1
1
1
1
0
0
0
2005
0
-1
2005
-1
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
Sources: Statistics Norway and Norges Bank
26
Monetary Policy Report 2/07
Norges Bank
Monetary policy strategy - evaluation
• The interest rate path presented in MPR 2/07 reflects the Executive
Board's trade-off between bringing inflation up to target and
stabilising developments in output and employment.
• In the light of this trade-off, the interest rate will be increased
gradually so that we can assess the effects of interest rate changes
and other new information on economic developments. Given the
inflation target, we will be mindful of the effects of higher interest
rates on the krone exchange rate when inflation is low.
• The key policy rate should lie in the interval 4½ – 5½% in the period
to the publication of the next Report on 31 October 2007, conditional
on economic developments that are broadly in line with the
projections.
28
Norges Bank
Executive Board meeting
15 August 2007
29