§ 1 Purpose
The money market portfolio shall be invested in such a way that it can be used at short notice for transactions in the foreign exchange market in connection with the implementation of monetary policy or in the interests of financial stability. The money market portfolio may also be used for other types of market transactions, including:
- voluntary purchase or sale of SDRs on commission from the IMF and other transactions in SDRs;
- the IMF’s withdrawals from the krone account at Norges Bank;
- withdrawals under special agreements entered into with the IMF and other countries;
- transfers of capital to the Government Petroleum Insurance Fund and transactions between the Petroleum Insurance Fund and the money market portfolio; and
- other commitments.
§ 2 Size of money market portfolio and transfers between the investment and money market portfolios
The size of the money market portfolio shall be between SDR 2 billion and SDR 3 billion.
If considerations regarding monetary policy, financial stability or other commitments so indicate, the Governor of Norges Bank may decide that the size of the money market portfolio can be outside this range temporarily.
If there is the prospect of the size of the portfolio being outside the limits in the Executive Board’s guidelines as a result of transactions specified in Guideline 1, the Governor of Norges Bank decides when and how much capital shall be transferred between the investment portfolio and the money market portfolio in consultation with Norges Bank Monetary Policy.
§ 3 Investments
3.1 Investment universe
The following instruments may be used in the management of the portfolio: treasury bills; government bonds with a residual maturity of less than one year, repurchase, reverse repurchase and tri-party agreements; deposits; loans; listed futures on government bonds; listed futures on money market rates; interest rate swaps; and foreign exchange contracts.
The Governor of Norges Bank lays down guidelines for use of derivatives.
§ 3.2 Currency distribution
The money market portfolio shall consist of US dollars and euro. Transactions may also be performed in pounds sterling and Japanese yen.
§ 3.3 Benchmark portfolio
The benchmark portfolio shall consist of 50 per cent US dollars and 50 per cent euro.
The benchmark portfolio shall be composed of overnight money market indices for US dollars and euro, and treasury bill indices for US dollars and euro.
The Governor of Norges Bank lays down supplementary guidelines on the weighting between treasury bill and money market indices in relation to the portfolio’s purpose of liquidity.
§ 3.4 Rebalancing
In periods between rebalancings, the actual portfolio will move away from the weights in Guideline 3.3. The Governor of Norges Bank lays down principles for rebalancing.
§ 3.5 Liquidity
The money market portfolio shall be invested in such a way that it within one trading day can be used for transactions in the foreign exchange market (with standard settlement) without having to realise significant losses.
§ 3.6 Market risk
Overall market risk shall be measured in terms of expected tracking error, which is the expected value of the standard deviation of the difference between the returns on the actual portfolio and the benchmark portfolio. Maximum expected tracking error is 1 percentage point.
§ 3.7 Requirements relating to valuation, performance measurement and risk management and monitoring
Valuation, performance measurement and risk management and monitoring shall comply with internationally recognised standards and methods.
§ 3.7.1 Valuation
It shall be possible to evaluate the method for establishing the value of financial instruments, and the method shall represent with reasonable certainty the real value of the assets in the foreign exchange reserves at the time of measurement. Valuation shall take place at least monthly and be based on market prices.
§ 3.7.2 Risk management, measurement and monitoring
Market risk
Market risk shall be measured in such a way that it can be verified that the limit for relative risk in the money market portfolio is being observed.
Counterparty risk
The follow-up system and frequency of measurement for monitoring counterparty risk shall be followed up continuously, including requirements relating to minimum credit rating and exposure limits.
Operational risk
Identification and measuring methods that comply with internationally recognised standards shall be used for the different dimensions of operational risk.
§ 4 Reporting
The Executive Board shall receive quarterly reports on the management of the money market portfolio. The report shall contain an account of return, the return differential between the actual investments and the benchmark portfolio, risk exposure, and compliance with the guidelines.
A simplified version of the report shall be published.
§ 5 Delegation of authority
The Governor of Norges Bank may amend the guidelines for the money market portfolio in order to be prepared for interventions, or in situations where there is particular uncertainty regarding developments in individual markets. The Executive Board shall be informed retrospectively of such amendments.
The Governor of Norges Bank may make decisions regarding updates and other technical changes in the Executive Board’s guidelines. The Executive Board shall be informed of such changes once a year.
The Governor of Norges Bank lays down supplementary guidelines for management.