Norges Bank
Executive Board meeting
12 December 2007
1
Monetary Policy Report 3/07 – Conclusions
Norges Bank
The Executive Board’s strategy
 The key policy rate should be in the interval 4¾ - 5¾% in
the period to the publication of the next Monetary Policy
Report on 13 March 2008, unless the Norwegian
economy is exposed to major shocks. Given the inflation
target, we will be mindful of the effects of higher interest
rates on the krone exchange rate when inflation is low.
2
Norges Bank
Baseline scenario in Monetary Policy Report 3/07
Per cent. 2005 Q1 – 2010 Q4
9
8
5
9
Key policy rate
8
4
4
50%
3
3
70%
2
2
90%
1
1
2
0
0
1
-1
-1
-2
2005
-2
7
7
6
6
5
5
4
4
3
3
2
1
0
2005
0
2006
2007
2008
2009
2010
5
30%
5
4
Inflation (CPI)
4
4
3
3
2
2
1
1
0
-1
2005
5
Output gap
2006
2007
2008
2009
2010
4
Underlying inflation
(CPI-ATE)
3
3
2
2
1
1
0
2005
0
0
-1
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
Sources: Statistics Norway and Norges Bank
3
Norges Bank
Difference between money market rate and
expected key policy rate1)
3-month maturity. Percentage points. 1 April – 11 December 2007
1.2
1.2
UK
1
1
Euro area
0.8
0.8
US
0.6
0.6
0.4
0.4
Norway2)
0.2
0
Apr
1)
2)
0.2
Sweden
0
May
Jun
Jul
Aug
Sep
The expected key rate is measured by the Overnight Indexed Swap (OIS)
Norges Bank’s projections
Oct
Nov
Dec
Sources: Bloomberg, Reuters (EcoWin) 4
and Norges Bank
Norges Bank
Risk premia1) on Norwegian 3-month money market rates
On IMM dates. Percentage points. Normal = 0.1
0.8
0.8
0.7
0.7
0.6
0.6
0.5
0.5
0.4
0.4
0.3
0.3
0.2
0.2
0.1
0.1
0
0
21/12/07
21/03/08
21/06/08
21/09/08
21/12/08
21/03/09
1)
Difference between forward 3-month money market rates and forward
overnight indexed swaps OIS (Overnight indexed swap)
Sources: Reuters (EcoWin) and Norges Bank
5
Norges Bank
Credit premia on loans
secured on sub-prime mortgages1), commercial property loans2) and
conventional mortgages 3). Basis points. 1 January 2006 – 11 December 2007
3000
800
Sub-prime
mortgages
(left-hand scale)
2500
700
600
Commercial
property loans
(right-hand scale)
2000
500
1500
400
Conventional
mortgages
(right-hand scale)
1000
300
200
500
0
Jan 06
100
0
May 06
Sep 06
Jan 07
May 07
Sep 07
1)
Credit rating BBB-, issued in second half of 2006
Credit rating BBB3) Agency mortgage (prime) with 30-year maturity
2)
Source: Lehman Brothers 6
Norges Bank
Credit premium on regular corporate bonds1)
5-year CDS prices. Basis points. 1 May 2007 – 11 December 2007
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
US
1.0
1.0
0.5
Europe
0.0
2004
1) Bonds
with a BBB-rating
0.5
0.0
2005
2006
2007
Source: Reuters (EcoWin)
7
Norges Bank
Price for hedging against credit risk.
5-year CDS prices. Basis points. 1 May 2007 – 10 December 2007
60
60
European financials
(Itraxx index)
50
40
50
40
Nordea
30
30
20
20
DnB NOR
10
Handelsbanken
10
SEB
0
May 07
0
Jul 07
Sep 07
Nov 07
Source: Bloomberg
8
Norges Bank
Price for hedging against credit risk
5-year CDS prices. Basis points. 1 January 2007 – 10 December 2007
360
330
300
270
240
210
180
150
120
90
60
30
0
Jan 07
Kaupthing
Glitnir
Landsbanki
Citigroup
European financials
(Itraxx index)
DnB NOR
Danske Bank
Mar 07
May 07
Jul 07
Sep 07
360
330
300
270
240
210
180
150
120
90
60
30
0
Nov 07
Sources: Bloomberg and Reuters (EcoWin) 9
Norges Bank
Equities
Indices, 1 January 2007 = 100. 1 January 2007 – 11 December 2007
150
150
Emerging
economies
140
140
130
130
120
Norway
120
110
110
100
100
US
90
80
Jan 07
Japan
Euro area
90
80
Mar 07
May 07
Jul 07
Sep 07
Nov 07
Source: Reuters (EcoWin) 10
Norges Bank
Growth forecasts Consensus Forecasts
GDP. Percentage change on previous year
2007
9
8
7
2008
9
Projections October
8
Projections November
7
6
6
5
5
4
4
3
3
2
2
1
1
0
Projections October
Projections November
0
World
North Western Japan
America Europe
Asia Eastern Latin
excl. Europe America
Japan
World
North Western Japan
America Europe
Asia Eastern Latin
excl. Europe America
Japan
Source: Consensus Forecasts
11
Norges Bank
Key rates and forward rates
31 October and 11 December 2007
6
6
US
5
5
UK
Norway
4
4
Euro area
3
3
11 December 2007
2
1
Jan 05
After previous monetary
policy meeting
(31 October 2007)
2
1
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Sources: Reuters and Norges Bank 12
Norges Bank
Average prices for crude oil and natural gas
1997 Q1 – 2007 Q41)
Gas price
USD/1000Sm3
Oil price
USD/barrel
500
100
90
400
80
70
300
60
50
200
40
Brent Blend, USD/barrel1)
30
Gas price UK1)
100
20
10
Norwegian gas
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
1)
Average so far in the fourth quarter
0
Source: Statistics Norway and Norges Bank 13
Norges Bank
Petroleum production in Norway
January 2000 – September 2007
Million barrels/
day
Per cent
4.0
9.0
3.5
6.0
3.0
3.0
2.5
Crude oil production
(left-hand scale)
0.0
2.0
-3.0
Annual growth in total
petroleum production
(right-hand scale)
1.5
1.0
2000
-6.0
-9.0
2001
2002
2003
2004
2005
2006
2007
Source: Norwegian Petroleum Directorate 14
Norges Bank
Different indicators of inflation
12-month change. Per cent. January 2002 – November 2007
5.5
5.5
CPI
4.5
4.5
3.5
3.5
2.5
2.5
Weighted median
1.5
1.5
0.5
0.5
CPI-ATE
-0.5
20 per cent trimmed mean
-0.5
-1.5
-1.5
-2.5
-2.5
2002
2003
2004
2005
2006
2007
Source: Statistics Norway 15
Norges Bank
Registered unemployed
and supply of advertised vacancies
Percentage of
labour force
Seasonally adjusted
In
thousands
6
30
Registered
unemployed
(left-hand scale)
5
25
4
20
3
15
2
10
Supply of vacancies1)
(right-hand scale)
1
0
1980 1983
1) 12-month
5
0
1986 1989 1992 1995
moving average.
1998 2001 2004
2007
Sources: Norwegian Labour and Welfare Organisation (NAV) and Norges Bank 16
Norges Bank
Wage growth
Per cent
9
9
8
8
Annual wage growth, TRCIS.
All groups
7
Projection MPR 3/07
Wages per normal person-year.
QNA
6
7
6
5
5
4
4
Disbursed wages1).
Quarterly figures
3
3
2
2
1) Disbursed
1
wages consist of disbursed agreed wages, irregular supplements and bonuses, commissions
etc. Compensation for overtime is not included. (Manufacturing, oil and gas, construction, transport and
communications, retail trade, commercial services, utilities and hotel and restaurant).
0
1
0
1999
2000
2001
2002
2003
2004
2005
2006
2007
Sources: Statistics Norway, Technical Reporting Committee on Income Settlements and Norges Bank 17
Norges Bank
Disposable income1) and consumption
Last four quarters. Growth on same period previous year.
Per cent. 2003 Q4 - 2007 Q3
8
8
Disposable income1)
6
6
Consumption
4
4
2
2
Revised figures (3rd quarter)
Figures prior to revision (2nd quarter)
0
0
Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07
1)
Excluding share dividends.
Sources: Statistics Norway and Norges Bank
18
Norges Bank
Household saving and net lending as a share of
disposable income
Excluding share dividends. Last 4 quarters. Per cent.
2002 Q4 – 2007 Q3
Saving ratio excl. share
dividends
2
2
-2
-2
-6
-6
Net lending to income ratio
excl. share dividends
-10
-14
Dec-02
-10
-14
Dec-03
Dec-04
Dec-05
Dec-06
Sources: Statistics Norway and Norges Bank 19
Norges Bank
Expected consumer price inflation in 2 years
Employee/employer organisations and experts1). Per cent.
2002 Q3 – 2007 Q4
4
4
Employer organisations
3
3
2
2
Experts
Employee organisations
1
1
1) Economists
0
Sep-02
in the financial industry and academia.
0
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Source: TNS Gallup 20
Norges Bank
TNS Gallup's household trend indicator
Unadjusted and trend. 1992 Q3 – 2007 Q4
45
45
30
30
Trend
15
15
0
0
Unadjusted
-15
-15
-30
1992
-30
1994
1996
1998
2000
2002
2004
2006
Source: TNS Gallup
21
Norges Bank
12-month change in house prices
By county and region. Per cent. January 2006 – November 2007
30
25
30
Agder
counties
Rogaland
Oslo
25
20
20
15
15
10
10
5
5
Whole of Norway
0
0
Hedmark
-5
-10
Jan-06
-5
-10
Jul-06
Jan-07
Jul-07
Sources: Norwegian Association of Real Estate Agents, Association of Real Estate
Agency Firms, FINN.no, ECON Pöyry, Statistics Norway and Norges Bank
22
Norges Bank
Key policy rate, money market rates and banks' lending
rates on new loans1)
6.2
6.0
5.8
5.6
5.4
5.2
5.0
4.8
4.6
4.4
4.2
4.0
Jul-07
Per cent. 2 July 2007 – 30 November 2007
Mortgage rate
3-month NIBOR
Aug-07
Sep-07
Key policy rate
Oct-07
6.2
6.0
5.8
5.6
5.4
5.2
5.0
4.8
4.6
4.4
4.2
4.0
Nov-07
1)
Interest rates on new mortgage loans for NOK 1 million within 60% of purchase price with
floating interest rate. Figures for the 20 largest banks, weighted according to market share.
Sources: Norsk familieøkonomi AS and Norges Bank 23
Norges Bank
Key policy rate in baseline scenario and estimated
forward rates1)
Per cent. At 11 December 2007
6
5.5
6
Baseline scenario MPR 3/07
5.5
Market 31 October 2007
5
5
Market 11 December 2007
4.5
4
Q1 08
I) A
4.5
4
Q3 08
Q1 09
Q3 09
Q1 10
credit risk premium and a technical difference of 0.20 percentage point have been
deducted to make the forward rates comparable with the key policy rate.
Q3 10
Sources: Reuters and Norges Bank
24
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
Projections MPR 3/07
Average
3 - 11 December 2007
91
94
4
3
2
11 December 2007
97
1
After previous monetary
policy meeting
(31 October 2007)
100
Weighted interest rate
differential (right-hand scale)
103
2002
1)
2003
2004
2005
0
-1
2006
2007
2008
2009
2010
A rising curve denotes an appreciation of the krone.
Sources: Bloomberg, Reuters (EcoWin) and Norges Bank 25
Monetary Policy Report 3/07 – Conclusions
Norges Bank
The Executive Board’s strategy
 The key policy rate should be in the interval 4¾ - 5¾% in
the period to the publication of the next Monetary Policy
Report on 13 March 2008, unless the Norwegian
economy is exposed to major shocks. Given the inflation
target, we will be mindful of the effects of higher interest
rates on the krone exchange rate when inflation is low.
26
Norges Bank
Executive Board meeting
12 December 2007
27