Executive Board Meeting

(1)

Executive Board Meeting

3 February 2010

(2)

0 1 2 3 4 5 6 7 8 9

Mar.07 Mar.08 Mar.09 Mar.10 Mar.11 Mar.12

Projected key policy rate in the baseline scenario with fan chart from MPR 3/09

With average key policy rate for 2009 Q4 and strategy interval

30%

50%

70%

90%

Source: Norges Bank Strategy interval MPR 3/09

(3)

Criteria for a good interest rate path

1. Inflation close to target in the medium term

2. Reasonable balance between the path for inflation and the path for capacity utilisation

The assessment incorporates potential effects of asset prices on inflation and capacity utilisation

3. Robustness

4. Gradualism and consistency

5. Cross-checks against simple monetary policy rules

(4)

Baseline scenario MPR 3/09

-4 -3 -2 -1 0 1 2 3 4 5

2007 2008 2009 2010 2011 2012

0 1 2 3 4 5 6 7

2007 2008 2009 2010 2011 2012

0 1 2 3 4 5 6 7 8 9

2007 2008 2009 2010 2011 2012

0 1 2 3 4 5

2007 2008 2009 2010 2011 2012 Output gap

Key policy rate

CPI

Sources: Statistics Norway and Norges Bank

CPIXE

30%

50%

70%

90%

(5)

Norges Bank’s and the market’s interest rate path

The key policy rate. Per cent

1 2 3 4 5

Jan.10 Jul.10 Jan.11 Jul.11 Jan.12 Jul.12

The market 28 Oct.

The market 16 Dec.

The market 1 Feb.

MPR 3/09

Sources: Bloomberg, Thomson Reuters and Norges Bank

(6)

0 50 100 150 200 250

Jan.08 Jul.08 Jan.09 Jul.09 Jan.10

Europe S&P Comp.

Japan Topix Norway OSEBX US S&P 500

Emerging economies MSCI

16 Dec.

International stock prices

Total yield. Index, 1 Jan. 2009=100. 1 Jan. 2008 – 1 Feb. 2010

MPR 3/09

Source: Thomson Reuters

(7)

Credit risk

Europe. 5-year CDSs on enterprises, financial undertakings and government. Basis points. 5 Oct. 2009 – 1 Feb. 2010

40 50 60 70 80 90 100

Oct.09 Nov.09 Dec.09 Jan.10

Enterprises

Financial undertakings Government

MPR 3/09

Monetary policy meeting

16 Dec.

Source: Bloomberg

(8)

Effective yield differential against German 10-year government bonds

Percentage points. 1 Jan. 2007 – 29 Jan. 2010

-0.5 0 0.5 1 1.5 2 2.5 3 3.5 4

Jan.07 Jan.08 Jan.09 Jan.10

France Finland Ireland Greece Spain Italy

MPR 3/09 16 Dec.

(9)

World trade

Volume. Seasonally adjusted. January 1999 – November 2009

3-month growth

¹⁾

-15 -10 -5 0 5 10

2002 2005 2008

Index

80 90 100 110 120 130 140 150 160 170

2002 2005 2008

Source: CPB Netherlands Bureau for Economic Policy analysis 1) Three months moving average

(10)

PMI manufacturing in large emerging economies

Diffusion index. Seasonally adjusted. January 2000 – January 2010

30 35 40 45 50 55 60 65 70

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

China Russia India

(11)

Manufacturing production in emerging economies

Seasonally adjusted monthly growth

-15 -10 -5 0 5 10 15

2007 2008 2009

Brazil

South Korea Thailand Taiwan

Index, seasonally adjusted.

Dec. 2007 = 100

65 70 75 80 85 90 95 100 105 110 115

2004 2005 2007 2008

Brazil

South Korea Thailand Taiwan

(12)

Investment, credit growth and retail sales in China

12-month growth. January 2000 – December 2009

0 10 20 30 40

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

M2 growth

Credit growth (CNY-loans)

Fixed investment in urban areas 1)

Source: CEIC

1) Growth so far this year compared with the same period one year earlier

(13)

US – housing market

Index, seasonally adjusted. January 2001 = 100.

January 2001– December 2009

0 20 40 60 80 100 120 140 160

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Existing home sales New home sales Housing starts

Source: Thomson Reuters MPR 3/09

(14)

Unemployment

Percentage of labour force. Per cent. Seasonally adjusted.

January 1970 – December 2009

0 2 4 6 8 10 12

1970 1975 1980 1985 1990 1995 2000 2005 2010

US

Euro area UK

Japan

(15)

Oil price (Brent Blend)

USD per barrel. Daily figures. January 2002 – July 2012

0 20 40 60 80 100 120 140 160

2002 2004 2006 2008 2010 2012

Spot

28.10.2009 MPR 3/09 16.12.2009

01.02.2010

Sources: Thomson Reuters and Norges Bank

(16)

Public gross debt

Per cent of GDP. 1970 – 2017. Projections for 2009 – 2011 and 2017

0 50 100 150

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

OECD US UK Ireland Greece Germany

Source: OECD Economic Outlook 86

(17)

Growth projections for 2010

Projections by IMF at different points in time

0 2 4 6 8 10 12

US Japan China Euro area UK

IMF WEO Oct.

IMF WEO Update Jan. 10

MPR 3/09

IMF has revised up the growth projections for the world economy in 2010, from 3.1 per cent to 3.9 per cent.

Sources: IMF and Norges Bank

(18)

Key rates and estimated forward rates

Per cent. 1 Jan. 2007 – 31. Dec. 2012

¹⁾

0 1 2 3 4 5 6 7

Jan.07 Jan.08 Jan.09 Jan.10 Jan.11 Jan.12

US Euro area UK

16 Dec. 2009 1 Feb. 2010

Sources: Thomson Reuters, Bloomberg and Norges Bank 1) Broken lines show estimated forward rates per 16 December 2009. Unbroken lines show estimated forward rates per 1

February 2010. Forward rates are based on Overnight Indexed Swap (OIS) rates. Daily figures from 1 January 2007 and quarterly figures from 1 April 2010.

(19)

The exchange rate over the past 10 years

Weakest, strongest and average for I-44 and bilateral exchange rates

Sources: Bloomberg and Norges Bank

4 6 8 10 12 14

EURNOK USDNOK GBPNOK

Weakest the past 10 years Strongest the past 10 years 01.02.2010 Average the past 10 years

70 75 80 85 90 95 100 105 110

SEKNOK I-44

(20)

The development of the exchange rate

I-44 from 1 Jan. 2007 – 1 Feb. 2010

Source: Norges Bank

80 85 90 95 100 105 110

2007 2008 2009 2010

Projection 2010 Q1 = 90,87 Average

January 2000 - December 2009 = 94,37

Lehman

Brothers Monetary policy

meetings +0,25 +0,25

1)

1) Projection from Monetary Policy Report 3/09

(21)

Real exchange rates

Deviation from average 1970 – 2009. Per cent. 1970 – 2010

¹⁾

-20 -15 -10 -5 0 5 10 15 20 25

1970 1975 1980 1985 1990 1995 2000 2005 2010

Relative consumer prices Relative wages

1) The squares show the averages for the development so far in 2010.

A rising curve indicates weaker competitiveness.

Sources: Statistics Norway, Technical Reporting committee on Income Settlements (TRC), OECD, Ministry of Finance and Norges Bank

(22)

Bond spreads

DnB NOR Market’s projections for traded prices. 5-year maturity.

Compared with swap rates. Percentage points. 3. Jan. 2007 – 27. Jan. 2010

Source: DnB NOR Markets

-0.5 0 0.5 1 1.5 2 2.5 3

Jan.07 Jul.07 Jan.08 Jul.08 Jan.09 Jul.09 Jan.10

Banks

Covered bonds Non-financials

15. Sep. 2008

17. Mar. 2008 MPR 3/09

9. Aug. 2007

(23)

CPI and CPIXE

Actual development and projections from MPR 3/09 (dashed). 12-month growth. Per cent. January 2008 – June 2010

0 1 2 3 4 5 6

2008 2009 2010

CPI CPIXE

Sources: Statistics Norway and Norges Bank

(24)

Credit to households ¹⁾ and house price

inflation

12-month growth. Per cent.

January 2002 – January 2010

²⁾

Credit to enterprises ¹⁾ and rise in prices for business premises ³⁾

12-month growth. Per cent. January 2002 – December 2009

-30 -20 -10 0 10 20 30 40 50

2002 2005 2008

Prices for business premises

Credit growth

1) Mainland credit: c2

2) House prices for January. Credit growth to December 3) Semi annual figures

Sources: Statistics Norway, OPAK, the real state sector

(NEF, EFF, FINN.no and ECON Pöyry), OBOS and Norges Bank

2002 2005 2008

-30 -20 -10 0 10 20 30 40 50

House prices

Credit growth

(25)

Regional Network

November: the enterprises

expected growth in production, but variation between sectors.

Building and construction and suppliers to the oil industry

expected a fall in production six months ahead.

The activity in the traditional

manufacturing sector was low, but they expected that the growth in production will remain

approximately unchanged.

This picture was confirmed in a survey by phone in week 3, 2010

Source: Norges Bank's regional network

-3 -2 -1 0 1 2 3 4

2002 2004 2006 2008

Growth in production

Aggregated. Last 3 months and 6 months

ahead. Annualized. Index. Oct. 02 – Nov. 09

(26)

Petroleum investments

Actual development and projections from Norwegian Petroleum Directorate. Billions. Fixed 2009-prices. 2005 - 2014

0 20 40 60 80 100 120 140 160

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Facilities 1)

Explorations and studies Pipelands and land facilities Production wells

Source: Norwegian Petroleum Directorate 1) Purchases of goods and services to field development and fields in use

(27)

Unemployment

Percentage of labour force. Seasonally adjusted.

Montly and quarterly numbers. January 2002 – June 2010

¹⁾

0 1 2 3 4 5 6

2002 2004 2006 2008 2010

LFS-unemployment

Registered unemployment

Registered unemployed and on labour market programmes

Sources: Statistics Norway, Norwegian Labour and Welfare Administration (NAV) and Norges Bank

1) LFS-unemployment until October 2009. Registered unemployment until January 2010. Norges Bank’s projections from 2009 Q4 –2010 2Q (dashed).

(28)

Air passengers

Number in thousands. Seasonally adjusted. January 2005 –

December 2009

2400 2800 3200 3600

2005 2007 2009

600 650 700 750 800

2005 2007 2009

Overnight stays

Number in thousands. Seasonally adjusted. January 2005 –

December 2009

Sources: AVINOR and Statistics Norway

(29)

Interest rate developments in Norway

Per cent. 3 May 2007– 1 Feb. 2010

0 1 2 3 4 5 6 7 8 9

May.07 Nov.07 May.08 Nov.08 May.09 Nov.09

Bank mortgage rates on new loans 3-month money market rate

Key policy rate

Sources: Norsk familieøkonomi AS and Norges Bank