The Monetary Policy and Financial Stability Committee’s assessment

Meeting 22 January 2020

The Monetary Policy and Financial Stability Committee has decided to keep the policy rate unchanged at 1.50 percent. The Committee’s current assessment of the outlook and balance of risks suggests that the policy rate will remain at the present level in the coming period.

In Monetary Policy Report (MPR) 4/19, which was published on 19 December 2019, the assessment was that the policy rate would most likely remain at 1.50 percent in the coming period. With an unchanged policy rate, there were prospects that inflation would remain close to the inflation target, and that capacity utilisation would decline towards a normal level.

A new set of forecasts for the economy was not prepared for the monetary policy meeting on 22 January. New information was assessed against the projections in the December Report.

Growth among Norway’s trading partners appears to be broadly in line with projections. Activity and confidence indicators overall suggest continued moderate growth. The Committee focused on developments in the global risk outlook. The US and China have signed a limited trade agreement that implies among other things a slight reduction in tariffs on some products. The UK will formally leave the EU on 31 January, but there is still uncertainty surrounding the negotiations on a more permanent trade deal. Political tensions in the Middle East have had an impact on oil price developments in recent weeks, but futures prices are approximately the same as in December.

Trading partners’ forward rates indicate expectations of very low interest rates in the coming years, and are little changed since December. Global equity indexes have continued to rise.

 

Oil prices approximately the same as in December.

Crude oil spot and futures prices. USD per barrel. January 2013 – December 2022

Sources: Thomson Reuters and Norges Bank

 

The premium in the Norwegian money market has shown little change, while estimated Norwegian forward rates have fallen slightly. Market-implied rates indicate expectations of a policy rate close to 1.5 percent in the coming years. Interest rates offered by banks for residential mortgages imply that residential mortgage rates are broadly unchanged and in line with the projections in the December Report.

After having depreciated markedly through autumn, the krone appreciated towards the end of 2019. Measured by the import-weighted exchange rate index (I-44), the krone has been somewhat stronger than projected in December.

 

The krone has been somewhat stronger than projected

Import-weighted exchange rate index I-44. 1 September 2018 – 20 January 2020

Source: Norges Bank

 

The Committee noted that there are signs that growth in the Norwegian economy is slowing. Low GDP growth in November suggests that the economy grew slightly less towards the end of 2019 than projected. In the period September-November, mainland GDP rose by 0.3 percent compared with the previous three-month period. The Norwegian Petroleum Directorate estimates that petroleum investment in 2020 may be somewhat lower than assumed in the December Report.

 

Low GDP growth in November

Monthly and three-month growth. Seasonally adjusted. Percent. January 2016 – March 2020

Sources: Statistics Norway and Norges Bank

 

Labour market developments appear to be broadly in line with expectations. Registered unemployment has shown little change in recent months and was 2.3 percent in December.

 

Stable unemployment

Percent. Seasonally adjusted. January 2012 – March 2020

Sources: Norwegian Labour and Welfare Administration (NAV) and Norges Bank

 

House prices have continued to rise at a moderate pace. Both house price inflation and household debt growth have been in line with the projections in the December Report.

The 12-month rise in consumer prices adjusted for tax changes and excluding energy prices (CPI-ATE) was 1.8 percent in December, approximately as projected in the December Report. Other indicators of underlying inflation are also close to 2 percent. A fall in electricity prices contributed to a decline in the consumer price index (CPI) to 1.4 percent. Updated CPI-ATE projections from Norges Bank’s System for Averaging short-term Models (SAM) are a little lower than in December.

 

Underlying inflation close to 2 percent

Twelve-month change. Percent. January 2012 – March 2020

Sources: Statistics Norway and Norges Bank

 

The Committee’s assessment is that new information largely confirms the picture of the economic developments presented in the December Report. The risk of a sharp downturn in the global economy appears to have receded somewhat since autumn, but uncertainties surrounding global developments persist. Underlying inflation is close to the inflation target. Capacity utilisation in the Norwegian economy appears to be somewhat above a normal level, but new information supports the view that the economy is probably near a cyclical peak. The Committee’s assessment is that interest rate prospects for the coming period are little changed since the December Report.

The Committee decided to keep the policy rate unchanged at 1.50 percent. The Committee's current assessment of the outlook and the balance of risks suggests that the policy rate will most likely remain at the present level in the coming period. The decision was unanimous.

Øystein Olsen
Jon Nicolaisen
Egil Matsen
Ingvild Almås
Jeanette Strøm Fjære

22 January 2020

Charts - monetary policy meeting (pdf)