The Executive Board's assessment
Meeting 3 May 2017
Norges Bank's Executive Board has decided to keep the key policy rate unchanged at 0.50 percent.
The key policy rate is set with a view to maintaining inflation close to 2.5 percent over time without causing excessive fluctuations in output and employment. In Monetary Policy Report 1/17, which was published on 16 March 2017, it was the Executive Board's assessment that there was a continued need for an expansionary monetary policy. Capacity utilisation in the Norwegian economy was assessed to be below a normal level, and inflation was expected to range between 1 and 2 percent in the coming years. The Executive Board was of the view that the key policy rate would most likely remain at 0.5 percent in the period ahead.
At its meeting on 3 May, the Executive Board assessed new information against the projections in the March Report.
- Growth among trading partners has been broadly as expected, while overall inflation has been slightly lower than projected.
- Expected money market rates for trading partners have fallen.
- Oil prices have recently been around USD 50 per barrel. Futures prices have shown little change and indicate that oil prices will remain near today's level in the years ahead.
- The krone exchange rate, as measured by the import-weighted exchange rate index (I-44), is weaker than projected.
- The premium in the Norwegian money market has so far been somewhat lower than assumed. Banks' lending rates are little changed.
- The twelve-month rise in consumer prices adjusted for tax changes and excluding energy products (CPI-ATE) was 1.7 percent in March, approximately as expected in the March Report. The twelve-month rise in the consumer price index (CPI) was 2.4 percent, somewhat lower than projected.
- In a telephone survey in April, enterprises in Norges Bank's regional network confirmed that prospects for output growth have improved over the past six months.
- Registered unemployment has declined further and is lower than projected. As measured by the Labour Force Survey (LFS), employment and labour force developments have been broadly in line with expectations.
- In this year's interim settlement, the Norwegian Confederation of Trade Unions (LO) and the Confederation of Norwegian Enterprise (NHO) agreed on a wage norm for manufacturing of 2.4 percent. In the other settlements that have been negotiated, agreement has been reached in line with the wage norm for manufacturing. In the March Report, wage growth in 2017 was projected at 2.5 percent.
- House price inflation has slowed slightly, and the rise in house prices in March was somewhat lower than projected. Growth in housing starts has remained steady, as expected.
- Household debt growth has risen at a slightly faster pace than expected. The banks included in Norges Bank's lending survey reported that they have tightened credit standards for households.
In the Executive Board's judgement, the outlook and the balance of risks for the Norwegian economy do not appear to have changed substantially since the March Report. The Executive Board therefore decided to keep the key policy rate unchanged at 0.5 percent.