Norges Bank

Executive Board's assessment

Meeting 23 January 2019

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

In Monetary Policy Report 4/18, which was published on 13 December 2018, the Executive Board's assessment was that capacity utilisation in the Norwegian economy was close to a normal level. Underlying inflation was close to the 2 percent target. The Executive Board's assessment of the outlook and balance of risks suggested that the policy rate would most likely be raised in March 2019.

At the Executive Board's meeting of 23 January, new information was assessed against the projections in the December Report.

Growth among Norway's trading partners is slowing. New information suggests that recent growth has been weaker than assumed in December. Trading partners' forward rates have fallen a little, but continue to indicate a gradual rise in interest rates in the coming years. The uncertainty surrounding global trade and political processes persists. There is still no final agreement on the UK's withdrawal from the EU. There has been considerable volatility in financial markets since the December Report.

Estimated Norwegian forward rates have fallen slightly. The krone, measured by the import-weighted exchange rate index (I-44), has depreciated somewhat. The krone exchange rate is weaker than the projection for 2019 Q1 in the December Report.

Growth in the Norwegian economy is solid. Mainland GDP was unchanged in November, after strong growth the previous month. Growth in 2018 Q4 may be somewhat higher than envisaged, owing in part to stronger-than-anticipated growth in agriculture and fishing. Private consumption has been broadly as projected, but household confidence indicators have fallen. House prices have risen more than expected. Oil prices have shown considerable volatility in recent months, but both spot and futures prices are now approximately as assumed in December. The Norwegian Petroleum Directorate projects higher petroleum investment in 2019 than assumed in the December Report, but lower investment some years ahead.

Capacity utilisation in the Norwegian economy appears to be rising further. Labour market developments have been broadly as expected. Registered unemployment was unchanged at 2.4 percent in December, in line with that projected. The Labour Force Survey (LFS) for October indicated continued solid growth in employment and the labour supply.

Underlying inflation is close to target. The 12-month rise in the consumer price index adjusted for tax changes and excluding energy products (CPI-ATE) was 2.1 percent in December. The rise in the overall consumer price index (CPI) was 3.5 percent. Inflation has been a little higher than expected. Updated projections for the CPI-ATE from Norges Bank's System for Averaging short-term Models (SAM) are slightly higher than in December.

The Executive Board's assessment of the outlook and balance of risks implies a gradual increase in the policy rate. Global growth is a little weaker than projected, and there continues to be considerable uncertainty surrounding developments ahead. In Norway, economic growth and labour market developments appear to be broadly as projected, while inflation has been slightly higher than expected. Overall, new information indicates that the outlook for the policy rate for the period ahead is little changed since the December Report.

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

Published 24 January 2019 10:00