Executive Board's assessment

Meeting 15 August 2018

Norges Bank's Executive Board has decided to keep the key policy rate unchanged at 0.5 percent.

In Monetary Policy Report 2/18, which was published on 21 June 2018, the Executive Board's assessment was that the economic upturn was continuing and that capacity utilisation was close to a normal level. Underlying inflation was lower than the target, but rising capacity utilisation implied an increase in price and wage inflation further out. The Executive Board's assessment of the outlook and balance of risks suggested that the key policy rate would most likely be raised in September 2018.

At the Executive Board's meeting of 15 August, new information was assessed against the projections in the June Report.

Economic developments among Norway's trading partners have been broadly as projected in June. Trade conflicts and other political tensions have contributed to a fall in equity prices and a depreciation of the currency of some countries. Policy rates among many of Norway's trading partners have been raised in recent months. Forward rates are little changed and indicate a gradual rise in global interest rates in the coming years.

There is little new information about growth in the Norwegian economy. Goods consumption fell in June and was somewhat lower than projected. House prices have edged higher, as expected. Manufacturing output rose in 2018 Q2. Oil prices are little changed.

Unemployment has moved broadly in line with expectations. Registered unemployment rose slightly in July, to 2.4 percent. The increase is related to the Norwegian Labour and Welfare Administration's (NAV) new registration routines and a change in the timing of measurement. Unemployment measured by the Labour Force Survey (LFS) has edged lower and was 3.8 percent in May. Employment appears to have risen slightly less than projected.

Inflation has risen and has been higher than expected, primarily reflecting higher electricity prices. The 12-month rise in the consumer price index (CPI) accelerated to 3.0 percent in July. Adjusted for tax changes and excluding energy products (CPI-ATE), the rise in prices was 1.4 percent, a little higher than projected in the June Report. The krone, as measured by the import-weighted exchange rate index (I-44), is somewhat weaker than assumed.

The Executive Board's assessment is that the upturn in the Norwegian economy appears to be continuing broadly in line with the picture presented in June. Underlying inflation is below the inflation target, but the driving forces indicate that it will rise further out. Overall, the outlook and the balance of risks do not appear to have changed substantially since the June Report.

The Executive Board decided to keep the key policy rate unchanged at 0.5 percent. The decision was unanimous.

Published 16 August 2018 10:00