Norges Bank

The Executive Board’s assessment

Meeting 4 November 2015

Growth in the global economy is moderate. On the whole, growth among Norway's trading partners appears to be broadly in line with the projections in the September 2015 Monetary Policy Report. In China and other emerging Asian economies, there are signs that growth has stabilised, while activity is still declining among major commodity exporters such as Russia and Brazil. In a number of advanced economies, domestic developments remain solid, but weaker growth in emerging economies is weighing on export growth. Inflation in most advanced economies has been restrained by the fall in energy prices this year and been lower than projected. Core inflation has remained steady.

Since the September Report, the European Central Bank has signalled further monetary policy measures, and Sveriges Riksbank has increased its asset purchases. Markets have priced in lower policy rates ahead for the euro area and Sweden than in September. In the US and the UK, expectations concerning the monetary policy stance have shown little change. Overall, policy rate expectations among trading partners have fallen somewhat.

Oil prices have recently traded at somewhat below USD 50 per barrel, in line with the assumptions underlying the projections in the September Report. Futures prices have shown little change and reflect continued expectations of some increase in oil prices.

So far in 2015 Q4, the krone exchange rate has, on average, been weaker than projected in the September Report.

The premium in the Norwegian money market has increased and been somewhat higher than projected. Risk premiums on banks' bond funding have also edged up. The reduction in the key policy rate in September has passed through to bank lending rates. According to Norges Bank's lending survey, banks' lending standards are somewhat tighter.

Developments in the Norwegian economy appear to be slightly weaker than projected in the September Report. Registered unemployment has risen in line with projections in the September Report, but LFS unemployment has risen to a somewhat further extent than projected. Household goods consumption has been lower than projected. Manufacturing output appears to have fallen further in 2015 Q3, while traditional goods exports increased moderately as expected.

The Government's budget proposal for 2016 implies a structural non-oil deficit of NOK 195 billion in 2016. This includes a supplementary allocation to handle the inflow of asylum-seekers. Measured as a share of trend mainland GDP, the structural non-oil deficit is estimated to increase by 0.7 percentage point, which is more than assumed in the September Report.

House price inflation in September was somewhat lower than expected, and there are still wide regional differences in the housing market. Growth in household credit has been broadly in line with projections.

Inflation has been in line with the projections in the September Report. The year-on-year rise in the CPI-ATE was 3.1 percent in September. The rise in year-on-year CPI-ATE inflation in recent months primarily reflects rapidly rising prices for imported consumer goods. Inflation is expected to edge down as the effects of the krone depreciation unwind.

The key policy rate is set with a view to keeping inflation close to 2.5 percent over time. At its meeting on 23 September, the Executive Board decided to reduce the key policy rate by 0.25 percentage point to 0.75 percent. At the same time, the Executive Board indicated that the key policy rate may be reduced further in the coming year.

The effects of the fall in oil prices and decline in oil investment are gradually becoming evident, especially in regions closely linked to the oil industry. Since the previous monetary policy meeting, developments in the Norwegian economy have been slightly weaker than projected, and policy rate expectations abroad have continued to edge down. On the other hand, the krone exchange rate has been weaker than projected, and a more expansionary fiscal policy will contribute to fuelling demand for goods and services. An overall assessment of new information implies that the key policy rate be kept unchanged at this meeting.


The key policy rate is kept unchanged at 0.75 percent.

Published 5 November 2015 10:00