Norges Bank

Norges Bank's press conference of 18 September 2002

Interest rates were left unchanged at Norges Bank's Executive Board meeting on 18 September. Norges Bank's key interest rate, the sight deposit rate, therefore remains at 7 per cent. According to Norges Bank's assessment, with an unchanged interest rate, 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.

The objective of monetary policy is low and stable inflation. The inflation target is set at 2½ per cent. The key interest rate is set on the basis of an overall assessment of the inflation outlook, normally two years ahead.

In Norges Bank's last Inflation Report of 3 July 2002, consumer price inflation two years ahead, assuming an unchanged interest rate of 6.5 per cent and a krone exchange rate unchanged from the average rate in the second quarter, was projected at 2¾ per cent. At the monetary policy meeting on the same day, the deposit rate was raised by 0.5 percentage point, to 7 per cent.

Developments this summer indicate that the international recovery may be weaker, and come later, than we expected earlier. Equity prices have fallen markedly. Markets for Norway's export industries are stagnating, but at the same time the high oil price is providing a stimulus for some sectors of the Norwegian economy.

Demand growth in Norway remains strong. Persistently high wage growth is contributing to a sharp rise in prices for domestically produced goods and services. Household income is growing strongly, and household borrowing is substantial. Measured by value, growth in retail sales is high.

Labour market developments are approximately as expected. According to Statistics Norway's labour force survey, unemployment has remained at about 3¾ per cent. On the other hand, registered unemployment has risen somewhat.

The Norwegian krone is strong. This summer the effective krone exchange rate has been 2-3 per cent higher than assumed in the July Inflation Report.

Consumer prices increased somewhat more than expected in June and July, but returned to the expected level in August. Adjusted for tax changes and excluding energy products, consumer prices rose by 2.3 per cent compared with August 2001.

A sharp rise in labour costs is contributing to a relatively high rise in prices for goods and services produced in Norway. A persistently strong krone will contribute to keeping down prices for imported goods. The strong krone will also have consequences for activity in the internationally exposed sector. Together with prospects for low inflation internationally, the strong krone is the most important force acting as a counterweight to the sharp rise in domestic costs.

Published 18 September 2002 14:45