The Executive Board's monetary policy decision – background and general assessment
Meeting 22 October 2014.
Economic growth among Norway's trading partners is moderate and broadly in line with the projections in the September 2014 Monetary Policy Report, but the outlook has deteriorated somewhat. Uncertainty regarding developments ahead has increased, particularly in the euro area. Equity prices and oil prices have fallen. The expected rise in key rates abroad has again been deferred.
The krone has depreciated, partly as a result of lower oil prices. Measured by the import-weighted krone exchange rate (I-44), the krone has so far in the fourth quarter been just over 2 percent weaker than projected in the September Report.
Banks have reduced residential mortgage lending rates. There are therefore prospects that the average interest rate on loans to households may be slightly lower in the quarters ahead than projected in the September Report.
Growth in the Norwegian economy seems so far to be broadly in line with the projections in the September Report. Registered unemployment remains stable. Developments in household consumption of goods have been approximately as expected. House prices have risen slightly more than anticipated, while household debt growth has been in line with projections. The National Budget for 2015 includes a proposed increase in the structural non-oil deficit from 2014 to 2015 that is somewhat higher than projected in September.
Consumer price inflation has been slightly lower than projected. Consumer price inflation adjusted for tax changes and excluding energy products (CPI-ATE) was 2.4 percent in September. Underlying inflation is still estimated to be between 2 and 2½ percent.
The key policy rate is set with a view to keeping inflation close to 2.5 percent over time. At its meeting on 17 September, the Executive Board decided that the key policy rate should be kept unchanged at 1.5 percent. The analyses in the September Report implied a key policy rate at today's level in the period to end-2015, followed by a gradual increase. With this path for the key policy rate, there were prospects that inflation would be somewhat below, but close to, 2.5 percent in the years ahead. Capacity utilisation was expected to edge down over the coming year, but to edge up again thereafter to close to a normal level.
Since the publication of the September Report, the outlook for growth among Norway's trading partners has deterioratedsomewhat and the expected increase in key rates has again been deferred. Domestic consumer price inflation has been slightly lower than projected, but is still close to 2.5 percent. Growth in the Norwegian economy seems to be broadly in line with the September projections. At the same time, the krone has been weaker than projected and bank lending rates have been reduced. Developments abroad and the fall in oil prices have contributed to heightened uncertainty regarding growth ahead. An overall assessment of new information and the risk outlook suggest that the key policy rate should be left unchanged at this meeting.
The key policy rate is kept unchanged at 1.5 percent.