Executive Board's assessment
Meeting 2 May 2018
Norges Bank's Executive Board has decided to keep the key policy rate unchanged at 0.5 percent.
In Monetary Policy Report 1/18, which was published on 15 March 2018, the Executive Board's assessment was that the economic upturn was continuing and that the output gap in the Norwegian economy was closing. Underlying inflation was low, but rising capacity utilisation was expected to push up 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 after summer 2018.
At the Executive Board's meeting of 2 May, new information was assessed against the projections in the March Report.
The upturn in the global economy is continuing, but a decline in confidence indicators in Europe may indicate that growth among Norway's trading partners so far in 2018 has been slightly weaker than projected in March. Heightened political tensions and a risk of protectionism are fuelling uncertainty about the growth outlook. Global inflation has picked up somewhat in recent months. Forward rates among trading partners as a whole have edged lower. The Norwegian money market premium has risen and is higher than projected. The rise reflects global conditions, and market interest rate expectations suggest that premiums will move lower ahead.
There is little new information about growth in the Norwegian economy. Goods consumption in 2018 Q1 was somewhat lower than expected, while house prices have stabilised in line with the projections in the March Report. Oil prices have risen and are higher than assumed. Futures prices have also risen slightly, but continue to suggest that oil prices will decline in the coming years.
Labour market developments have been broadly in line with expectations. Registered unemployment so far in 2018 has remained unchanged at 2.4 percent, while unemployment according to the Labour Force Survey (LFS) fell slightly in February, to 3.9 percent. Employment and the labour force have grown.
In this year's wage settlement, the Norwegian Confederation of Trade Unions (LO) and the Confederation of Norwegian Enterprise (NHO) agreed on a wage norm for manufacturing of 2.8 percent. The norm is consistent with the wage projection for 2018 in the March Report.
The 12-month rise in the consumer price index (CPI) in March was 2.2 percent. Adjusted for tax changes and excluding energy products (CPI-ATE) the rise in prices was 1.2 percent. Inflation was lower than projected. Imported goods inflation in particular was weaker than expected. The krone, as measured by the import-weighted exchange rate index (I-44), is slightly weaker than projected.
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 the March Report. Underlying inflation is below the inflation target, but the driving forces indicate that it will rise. Overall, the outlook and the balance of risks do not appear to have changed substantially since the March Report.
The Executive Board decided to keep the key policy rate unchanged at 0.5 percent. The decision was unanimous.