Norges Bank

Executive Board's assessment

Meeting 24 October 2018

Norges Bank's Executive Board has decided to keep the key policy rate unchanged at 0.75 percent.

In Monetary Policy Report 3/18, which was published on 20 September 2018, the Executive Board's assessment was that the economic upturn was continuing and that capacity utilisation was close to a normal level. Underlying inflation was close to the 2 percent target. The key policy rate was raised from 0.50 to 0.75 percent in September, and the Executive Board's assessment of the outlook and balance of risks suggested that the key policy rate would most likely be increased further in 2019 Q1.

At the Executive Board's meeting of 24 October, new information was assessed against the projections in the September Report.

Economic developments among Norway's trading partners have been broadly as projected in September. There is still uncertainty about the impact of higher trade barriers on the global economy. Trading partners' forward rates have edged higher and indicate a gradual rise in interest rates in the coming years. After rising over a long period, global equity indexes have fallen.

The premium in the Norwegian money market has been slightly lower than the projection for 2018 Q4, while banks have raised their lending rates broadly as expected. Estimated Norwegian forward rates have increased a little. The krone, measured by the import-weighed exchange rate index (I-44), has appreciated somewhat. The krone exchange rate has been close to the projection for Q4 from the September Report.

Mainland GDP fell between July and August. The decline was driven by a sharp fall in agricultural output, owing to the dry summer. Business sentiment indicators point to continued solid activity growth. Private consumption has risen somewhat less than projected. House prices have shown little change, as expected. Oil prices are broadly as assumed in September. The fiscal policy stance in the Government's draft budget for 2019 is approximately in line with the assumptions in the September Report.

Labour market developments have been broadly as expected. Registered unemployment remained unchanged at 2.4 percent in September, in line with the projection. The Labour Force Survey (LFS) indicated a slight rise in unemployment in July, to 4 percent.

Inflation has been somewhat higher than expected. The 12-month rise in the consumer price index (CPI) was 3.4 percent in September, unchanged from the previous month. Adjusted for tax changes and excluding energy products (CPI-ATE), inflation was unchanged at 1.9 percent. Updated inflation projections for Q4 from the Bank's System for Averaging short-term Models (SAM) are somewhat higher than in September.

The Executive Board's assessment of the outlook and balance of risks imply a gradual increase in the key policy rate. Economic growth has been a little lower and inflation somewhat higher than projected, but the outlook and the balance of risks do not appear to have changed substantially since the September Report.

The Executive Board decided to keep the key policy rate unchanged at 0.75 percent. The decision was unanimous.

Published 25 October 2018 10:00