The Executive Board's monetary policy decision – background and general assessment
Meeting 8 May 2013.
Global growth remains robust, but economic conditions are weak in many advanced economies. In the euro area, activity has slowed in several of the largest economies and it appears the downturn may persist for longer than previously expected. Unemployment has continued to rise. In the US, the economy is growing at a moderate pace and employment is on the rise. In emerging economies, developments have been somewhat weaker than anticipated in recent months, but growth is still high. Prices for oil and other commodities have decreased. Market expectations concerning key rates abroad have fallen further.
The krone has depreciated since the March Monetary Policy Report. Money and bond market premiums are broadly unchanged. Banks have increased lending rates for households and enterprises.
The Norwegian economy is growing at a solid pace. Information gathered from Norges Bank's regional network indicates that output increased somewhat less than envisaged by network enterprises in January, but growth is still expected to be slightly higher ahead. At the same time, household consumption has picked up. The results of the 2013 wage settlement suggest that wage growth may be somewhat lower than projected. Unemployment is still low and employment continues to rise. The rise in house prices has slowed somewhat. Household debt continues to rise from a high level.
Inflation remains low. The rise in consumer prices has been slightly lower than projected. Underlying inflation is still estimated to be in the interval 1–1½ percent.
The key policy rate is set with a view to keeping inflation close to 2.5 percent over time. The key policy rate is low because inflation is low and because external interest rates are very low. At the same time, capacity utilisation in the Norwegian economy is above a normal level, and house prices and debt have been rising faster than incomes for a long period. At its meeting on 13 March, the Executive Board decided that the key policy rate should be in the interval 1–2 percent in the period to the publication of the next Report on 20 June 2013, unless the economy is exposed to new major shocks.
Since the publication of the March Report, growth prospects for the euro area have weakened somewhat. Market participants now expect that it will take even longer for key rates abroad to rise. Inflation in Norway has been slightly lower than expected and there are prospects that wages will rise somewhat less than projected. On the other hand, growth in the Norwegian economy is still solid and the krone has depreciated somewhat. Developments in the Norwegian economy seem to be broadly in line with the projections in the March Report. An overall assessment of the outlook and the balance of risks suggests that the key policy rate should be left unchanged at this meeting.
The key policy rate is kept unchanged at 1.5 percent.
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