Norges Bank
Executive Board meeting
26 September 2007
1
Norges Bank
Growth forecasts Consensus Forecasts
GDP. Percentage change on previous year
2008
2007
9
8
9
Forecasts August
8
Forecasts September
Forecasts August
Forecasts September
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
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
2
Norges Bank
New measures from central banks (since 15 August)
Central bank
Fed
ECB
Bank of England
Date
Comment:
17 August
The Fed lowers the discount rate temporarily from 6.25 to 5.75 per cent.
24 August
Increases loan terms - up to 30 days. Increase in securities that are
accepted as collateral for loans.
18 September
The Fed lowers the target for the federal funds rate by 0.5 percentage
point to 4.75 per cent (there was a slight overweight of expectations for
0.25 percentage point in advance).
23 August
Extraordinary 3-month provision of liquidity.
6 September
ECB keeps interest rate unchanged (as expected by the majority in the
market).
5, 13 and 20
September
Reserve requirements and fluctuation margins are increased several
times.
6 September
BoE keeps Bank Rate unchanged (as expected by the majority in the
market).
14 and 19
September
BoE offers emergency funding to Northern Rock.
19 September
BoE offers liquidity with a 3-month maturity. Increase in securities that
are accepted as collateral for loans.
Norges Bank
House prices1) and housing starts in the US
Seasonally adjusted. 12-month rise.2) January 2003 – August 2007
20
20
15
15
10
10
5
5
New dwellings
0
0
-5
Existing
dwellings
-10
-5
-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 4
Norges Bank
Equities
Indices,1 November 2006 = 100. 1 November 2006 – 24 September 2007
140
140
Euro area
130
130
120
110
120
Norway
US
Emerging
economies
110
100
90
Nov 06
100
Japan
90
Jan 07
Mar 07
May 07
Jul 07
Sep 07
Source: Reuters (EcoWin)
5
Norges Bank
Credit premium on BBB-rated corporate bonds in the US and
Europe and on the debt of emerging economies
Percentage points. 1 January 2004 – 24 September 2007
6
6
5
5
4
4
3
3
Emerging economies
2
2
US
1
1
Europe
0
Jan 04
0
Jul 04
Jan 05
Jul 05
Jan 06
Jul 06
Jan 07
Jul 07
Source: Reuters (EcoWin)
6
Norges Bank
Price of hedging credit risk. 5-year CDS prices
Basis points. 1 January 2007 – 24 September 2007
200
200
180
180
Bear Stearns
160
160
140
140
120
120
100
100
80
Citigroup
JP Morgan Chase
European banks
(Itraxx index)
60
80
60
40
40
20
20
DnB NOR
0
Jan 07
Mar 07
May 07
Jul 07
0
Sep 07
Sources: Bloomberg, Reuters and Thomson Datastream
7
Norges Bank
Difference between money market rates
and expected key rate1)
1.6
3-month maturity. Percentage points. 1 April – 24 September 2007
1.4
1.6
1.4
1.2
1.2
UK
1.0
1.0
0.8
0.8
0.6
0.6
US
0.4
0.2
Euro area
0.4
Norway2)
0.2
0.0
0.0
-0.2
-0.2
Apr 07
May 07
Jun 07
Jul 07
Aug 07
Sep 07
1) The
expected key rate is measured by Overnight Indexed Swap (OIS).
2) Projections. The projections for the past 3 months are based on a market bias towards an interest rate increase in September and
December. Prior to this they are based on actual key rates.
Sources: Reuters (EcoWin) and Norges Bank
Norges Bank
Money markets
3-month LIBOR/NIBOR. Per cent. 1 April – 24 September 2007
8
8
UK
6
4
Euro area
US
6
Norway
4
2
2
0
0
Apr 07
May 07
Jun 07
Jul 07
Aug 07
Sep 07
Source: Reuters (EcoWin)
9
Norges Bank
Key rates and forward rates
16 August and 24 September 2007
6
6
US
5
5
UK
Norway
4
4
Euro area
3
3
24 September 2007
2
After previous monetary
policy meeting
(16 August 2007)
1
Jan 05
2
1
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Sources: Reuters (EcoWin), Bloomberg and Norges Bank
Norges Bank
Key policy rate in baseline scenario and estimated
forward rates1)
Per cent. At 24 September 2007
6.5
6.5
6.0
5.5
5.5
Market 24 September 2007
Market after previous
monetary policy meeting
(16 August 2007)
5.0
5.0
4.5
4.5
4.0
4.0
07 Q4
I) A
6.0
Baseline scenario MPR 2/07
08 Q2
08 Q4
09 Q2
09 Q4
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.
10 Q2
10 Q4
Sources: Reuters (EcoWin) and Norges Bank
Norges Bank
Trading partners' forward rate curve
3-month nominal money market rates
Per cent. At 24 September 2007
5.5
5.5
5
5
Baseline scenario MPR 2/07
4.5
4.5
Market after previous
monetary policy meeting
(16 August 2007)
Market 24 September 2007
4
4
07 Q4
08 Q2
08 Q4
09 Q2
09 Q4
10 Q2
10 Q4
Sources: Reuters (EcoWin) and Norges Bank
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
Average 1 - 24 September
2007
4
91
3
94
2
24 September 2007
97
100
1
After previous monetary
policy meeting
(16 August 2007)
Weighted interest
rate differential
(right-hand scale)
103
2002
1)
0
-1
2003
2004
2005
2006
2007
2008
2009
2010
A rising curve denotes an appreciation of the krone.
Sources: Bloomberg, Reuters (EcoWin) and Norges Bank 13
Norges Bank
Inflation and interval for underlying inflation1)
12-month change. Per cent. January 2002 – August 2007
6
6
CPI
Highest indicator
4
4
Inflation target
2
0
2
0
Lowest indicator
-2
2002
-2
2003
2004
2005
2006
2007
1)
Highest and lowest indicator of the CPI-ATE, a weighted
median and the trimmed mean of the sub-indices in the CPI.
Sources: Statistics Norway and Norges Bank 14
Norges Bank
CPI-ATE1)
Total and broken down into imported and domestically produced goods
and services2). Projections from MPR 2/07 (broken line).
12-month change. Per cent
4
3
4
3
Goods and services produced in Norway (0.7)
2
2
1
1
CPI-ATE
0
0
-1
-1
-2
-2
Imported consumer goods (0.3)
-3
-3
-4
-4
-5
-5
Jul 03 Jan 04 Jul 04 Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07
1)
CPI adjusted for tax changes and excluding energy products. A further adjustment
is made for estimated effect of reduced maximum day-care prices in 2006.
2) Norges Bank's projections.
Sources: Statistics Norway and Norges Bank
Norges Bank
Labour market
2550
Employment
Unemployment
In 1000s
Per cent. Seasonally adjusted
6
2500
QNA
LFS unemployment
2450
4
2400
2350
Registered unemployed
2300
2
LFS1)
2250
2200
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)
16
Norges Bank
Investment intentions survey. Petroleum activities
Estimated and actual investment. In billions of NOK
120
120
2007
2008
110
110
100
2006
100
90
2005
90
80
80
2004
70
2003
70
60
60
50
50
May
Aug
Nov
Estimate made previous year
Feb
May
Aug
Nov
Estimate made current year
Feb
Final figures
Source: Statistics Norway
Norges Bank
Investment intentions survey. Manufacturing
Estimated and actual investment. In billions of NOK
30
30
2007
25
25
2008
2006
2005
20
20
2004
15
2003
10
15
10
May
Aug
Nov
Estimate made previous year
Feb
May
Aug
Nov
Estimate made current year
Feb
Final figures
Source: Statistics Norway
Norges Bank
Index of commodity consumption
Volume. Seasonally adjusted. January 2000 – July 2007
160
160
150
150
140
140
130
130
120
120
110
110
100
100
2000
2001
2002
2003
2004
2005
2006
2007
Sources: Statistics Norway and Norges Bank
19
Norges Bank
Unit labour costs in mainland Norway
4-quarter rise. Smoothed. Per cent. 1996 Q1 - 2007 Q2
8
8
6
6
4
4
2
2
0
0
-2
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
-2
Sources: Statistics Norway and Norges Bank
Norges Bank
Wage share1)
Per cent. 1996 – 2006
75
75
70
70
65
65
60
60
1996
1) Labour
1998
costs as a share of factor income.
Market-oriented mainland industry.
2000
2002
2004
2006
Sources: Statistics Norway and Norges Bank
Norges Bank
Enterprise sector credit1) and liquid assets2)
12-month growth3). Per cent. January 2000 – July 2007 (C3 to June)
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).
3) Transaction-based growth estimate.
2) Non-financial
2003
2004
2005
2006
2007
Source: Statistics Norway
22
Norges Bank
House prices and household debt
Change on same month/quarter previous year. Per cent.
January 2001 – August 2007 (C2 to July)
25
Debt
House prices
14
20
12
C2
Real estate business
10
15
8
10
6
5
Statistics Norway
4
0
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
23
Norges Bank
Key rate
9
9
8
8
7
6
2/07
2/06
4
2
MPR 2/07
6
1/07
5
3
7
Strategy interval
1/05 2/05
3/04
3/05
5
3/06
1/06
4
Interest rate
decision 15 August
3
2
1
1
0
2005
0
2006
2007
2008
2009
2010
Source: Norges Bank
Monetary Policy Report 2/07
Norges Bank
Monetary policy strategy
• 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.
25