Minutes of the Executive Board meeting of 20 June 2018
Present:
Executive Board:
Øystein Olsen, Jon Nicolaisen, Egil Matsen, Kjetil Storesletten, Karen Helene Ulltveit-Moe, Kathryn M. Baker, Steinar Juel and Kristine Ryssdal
Alternates:
Arne Hyttnes and Kristine Landmark
Employee representatives:
Nina Larsson Midthjell and Mona H. Sørensen (items 121-126)
Supervisory Council:
Jan Frode Jakobsen (items 116-117)
Management:
Torbjørn Hægeland (items 111-114), Sindre Weme (items 111-114), Henrik Borchgrevink (item 111), Katrine Godding Boye (items 111-113), Ida Wolden Bache (items 111-113), Ingrid Solberg (items 111-113), Per Espen Lilleås (items 111-113), Olav Bø (items 111-113), Ketil Rakkestad (items 111-113), Andreas Andersen (items 111-113), Anne Kari Haug (items 112-113), Haakon Solheim (item 114), Yngve Slyngstad (items 116-125), Trond Grande (items 116-125), Dag Huse (items 116-119), Carine Smith Ihenacho (items 118-119), Merethe Riddervold (items 116-119, 122, 124-125), John Tore Vatnar (items 118-119), Hege Gjerde (item 124), Jane Haugland (item 124), Ørjan Agdesteen (item 124), Mads Kristensen (items 116-117), Pål Haugerud (items 116-119, 122-123), Ingunn Valvatne (items 111-126), Bjarne Gulbrandsen (items 114-120), Kyrre Nilsen (items 111-119, 121-126)
There were no comments on the meeting notice and agenda.
Item 111/2018 Recommendation to the Ministry of Finance on the countercyclical capital buffer
Discussion documents:
- Advice on the countercyclical capital buffer 2018 Q2, STRICTLY CONFIDENTIAL memo from Financial Stability (FST) of 19 June 2018
- Presentation by Financial Stability (FST)
Jon Nicolaisen presented a status update on the basis for the recommendation to the Ministry of Finance on the countercyclical capital buffer. The basis for the recommendation is to be presented in Monetary Policy Report 2/18 (cf item 112/2018).
In its discussion, the Executive Board emphasised that the upswing in the Norwegian economy and continued low interest rates entail a risk of high house price inflation ahead. This may lead to a renewed rise in household debt growth and vulnerabilities. On the other hand, an increase in the interest rate level will help curb debt growth. The sharp rise in commercial real estate prices in recent years has increased the risk of marked value declines further out. A continued rise in residential and commercial property prices that leads to an increase in financial imbalances may indicate a need to raise the countercyclical capital buffer. On the basis of an overall assessment, the Executive Board decided to advise the Ministry of Finance to keep the buffer rate unchanged at 2 percent. The decision was unanimous.
Item 112/2018 Monetary Policy Report with financial stability assessment 2/18
Discussion document:
- HIGHLY CONFIDENTIAL memo from Monetary Policy (PPO) of 18 June 2018
Jon Nicolaisen explained a number of adjustments made to the Report following its consideration by the Executive Board on 13 June 2018.
The Executive Board discussed the economic outlook, the monetary policy stance and the need for a countercyclical capital buffer for banks. The Executive Board approved the draft "Executive Board's Assessment" (cf interest rate decision in item 113/2018).
Item 113/2018 The current monetary policy situation – interest rate decision
Discussion documents:
- Norges Bank's key policy rate – meeting of 20 June 2018, STRICTLY CONFIDENTIAL memo from Monetary Policy of 20 June 2018
- Report from the meeting between Norges Bank and the Ministry of Finance of 30 April 2018
- Presentation from Monetary Policy (PPO)
Jon Nicolaisen presented a review of economic developments since the previous Executive Board meeting, with particular emphasis on developments in the money, currency and capital markets.
In its assessment of monetary policy, the Executive Board gave weight to the continued upturn in the Norwegian economy. Capacity utilisation appears to be close to a normal level, and is likely rising faster than expected earlier. Underlying inflation is below the inflation target, but higher capacity utilisation implies an increase in price and wage inflation further ahead.
In its discussion of the risks to the outlook, the Executive Board noted in particular that global growth may prove weaker than assumed, in the light of rising protectionism among other things. Price and wage inflation in Norway may remain moderate despite the upswing in economic activity. On the other hand, the upturn may be stronger than projected in this Report, on the back of strong employment growth, higher oil prices and rising house prices (cf previous item).
Monetary policy is expansionary. The outlook for the Norwegian economy suggests that it will soon be appropriate to raise the key policy rate. The uncertainty surrounding the effects of a higher interest rate suggests a cautious approach. As in March, the overall outlook and the balance of risks imply a gradual rate rise in the years ahead.
The Executive Board decided to keep the key policy rate unchanged at 0.5%. The Executive Board's current assessment of the outlook and balance of risks suggests that the key policy rate will most likely be raised in September 2018. The decision was unanimous.
Item 114/2018 Consultation NOU (Official Norwegian Reports) 2018:7 New Act on official statistics and Statistics Norway
Discussion document:
- Memo from Financial Stability of 13 June 2018
Torbjørn Hægeland presented the consultation document.
The Executive Board discussed the matter and authorised the Governor to finalise the consultation response to the Ministry of Finance in line with the presentation and the discussions at the meeting.
Item 115/2018 Briefing on current issues in Central Banking Operations
The Governor gave a briefing on relevant matters for Central Banking Operations.
Item 116/2018 Response to the assurance engagement for Norges Bank's Supervisory Council
Discussion document:
- Memo from the General Secretariat of 16 June 2018
Ingunn Valvatne presented the matter for discussion.
The Executive Board discussed the matter and approved the submission of the letter to the Supervisory Council. The Governor was authorised to finalise the letter, taking account of the Executive Board's remarks.
Item 117/2018 Method to calculate extreme deviation risk
Discussion document:
- Memo from NBIM of 14 June 2018
Yngve Slyngstad introduced the matter for discussion and Dag Huse presented the matter for discussion.
The Executive Board discussed the matter and decided to change the method to calculate expected extreme deviation risk for the Government Pension Fund Global in line with the proposal. The Ministry of Finance is to be informed of the change.
Item 118/2018 Council on Ethics recommendation of 7 May 2018
Discussion document:
- Memo from the Ownership Committee of 18 June 2018
Norges Bank has received a recommendation of 7 May 2018 from the Council on Ethics to place the company Nien Hsing Textile Co. Ltd under observation. The recommendation is based on the risk of the company being responsible for serious or systematic human rights violations, such as murder, torture, deprivation of liberty, forced labour and the worst forms of child labour, cf the conduct-based criterion in Section 3(1)(a) of Guidelines for Observation and Exclusion from the Government Pension Fund Global.
Egil Matsen reported on the Ownership Committee's discussions and the Committee's position.
The Executive Board concurred with the Ownership Committee's recommendation.
- Nien Hsing Textile Co. Ltd is to be placed under observation.
- The Council on Ethics is to be informed of the decision.
- The Governor is authorised to set a date for publishing the decision.
Item 119/2018 Recommendation from the Council on Ethics of 30 May 2018
Discussion document:
- Memo from the Ownership Committee of 18 June 2018
Norges Bank has received a recommendation of 30 May 2018 from the Council on Ethics to revoke the exclusion of the companies Kosmos Energy Inc and Cairn Energy Plc. The reason given for the recommendation is the dissolution of the company that the revocation was based on, and thus the basis no longer exists to exclude the company, cf Guidelines for Observation and Exclusion from the Government Pension Fund Global, Section 5(5).
Egil Matsen reported on the Ownership Committee's discussions and the Committee's position.
The Executive Board concurred with the Ownership Committee's recommendation.
- The exclusion of Kosmos Energy Inc and Cairn Energy Plc is revoked.
- The Ministry of Finance is to be informed of the decision.
- The Governor is authorised to set a date for publishing the decision.
Item 120/2018 Briefing on relevant matters for Norges Bank Investment Management
Yngve Slyngstad and Egil Matsen gave a briefing on relevant matters for Norges Bank Investment Management.
Item 121/2018 Minutes of the Executive Board meeting of 13 June 2018
Discussion document:
- Draft minutes
The Executive Board approved the minutes of its meeting of 13 June 2018.
Item 122/2018 GPFG – Annual update of the Executive Board's compensation principles
Discussion documents:
- Memo from NBIM of 14 June 2018
- Memo from the Remuneration Committee of 20 June 2018
Trond Grande presented the matter for discussion. Arne Hyttnes reported on the Remuneration Committee's discussions.
The Executive Board discussed the matter and decided to amend its principles for compensation to NBIM employees in line with the draft from management and the Remuneration Committee's specification proposal.
Item 123/2018 Pay bands for NBIM's leader groups
Discussion documents:
- Memo from NBIM of 15 June 2018
- Memo from the Remuneration Committee of 20 June 2018
Trond Grande presented the matter for discussion. Arne Hyttnes reported on the Remuneration Committee's discussions.
The Executive Board discussed the matter and took note of the calibration of leader group positions in NBIM.
The Executive Board set the standard pay bands for leader group positions at NBIM in line with the Remuneration Committee's recommendation.
Management was asked to return with a comprehensive review of the compensation structure in NBIM, including the basis for each pay band, in the course of autumn 2018.
Item 124/2018 Budget process for 2019
Discussion document:
- Memo from the General Secretariat of 13 June 2018
Ingunn Valvatne presented the matter for discussion.
The Executive Board discussed the matter and took note of the budget process plan for 2019. The budget for 2019 will be the theme of the seminar on 14 August and of the Executive Board meeting on 15 August.
Item 125/2018 Specification in the Executive Board's Rules of Procedure
Discussion document:
- Memo from the General Secretariat of 14 June 2018
Ingunn Valvatne presented the matter for discussion.
The Executive Board discussed the matter and approved the changes to the Executive Board's Rules of Procedure in line with the discussion document and remarks from the discussion. The matter is to be submitted to the Supervisory Council for information.
Item 126/2018 Any other business
There was no other business.
The following were distributed for information together with the discussion documents:
- Tax risks and costs of a possible reorganisation of GFPG, Letter with enclosure to the Ministry of Finance of 29 May 2018
- Country-based summaries – submission of letter from KPMG, Letter to the Ministry of Finance of 29 May 2018
- Guidelines for Observation and Exclusion, Letter to the Council on Ethics of 2 May 2018