Norges Bank's press conference of 19 September 2001
The tragic events in the US on 11 September will contribute to a further dampening of activity in the American, Asian and European economies. It is too early to predict the long-term effects.
Reactions in financial markets have been pronounced. Share prices have fallen sharply. Government bond yields have declined, particularly at the short end of the maturity spectrum. The US dollar has depreciated against the euro and the Japanese yen. Currencies of other economies such as Sweden have depreciated as a result of the change in growth prospects. The currencies of New Zealand and Australia have also weakened. Assets that are perceived as particularly safe, such as the Swiss franc and gold, have risen in value.
Central banks have ensured the smooth functioning of markets by supplying liquidity to the banking system. Interest rates have been cut in the US, Canada, the euro area, Switzerland, Sweden, Hong Kong, Taiwan, Denmark, Japan, the UK, New Zealand and Korea. These cuts will contribute to mitigating the negative effects on demand, output and employment.
For Norway, the effects of the international economic contraction are different from the impact on other European countries because oil prices remain high. So far, mainland businesses have not been heavily influenced by the slowdown in world economic growth, but the environment has now become more uncertain for several industries. The rate of increase in import prices is expected to remain low in the period ahead. The krone exchange rate has appreciated.
The Norwegian economy is characterised by high capacity utilisation and high cost inflation. The mainland economy appears to be expanding approximately in line with growth in output potential. At present, we do not have sufficient evidence to assert that international developments will change this situation as long as oil prices remain high. House prices and household borrowing are rising at a rapid pace. The announced increase in spending of petroleum revenues could lead to a more expansionary fiscal stance than in recent years.
Consumer price inflation was 2.7 per cent in August. For a number of years, Norges Bank has published its own projections for underlying price inflation, i.e. price inflation excluding changes in excise duties and energy prices. For August, underlying price inflation was projected at 2½ per cent. As of next month, Statistics Norway will publish the same type of price index.
As stated in the press release published earlier today, Norges Bank has left the key rate, the deposit rate, unchanged at 7.00 per cent. According to Norges Bank’s assessment, with an unchanged interest rate ahead, the probability that inflation two years ahead will be higher than 2½ per cent is the same as the probability that it will be lower.