Minutes

Minutes of the Executive Board meeting of 15 August 2018

Present:

Executive Board:

Øystein Olsen, Jon Nicolaisen, Egil Matsen, Kjetil Storesletten, Karen Helene Ulltveit-Moe, Kathryn M. Baker, Steinar Juel (items 127-147) and Kristine Ryssdal

Alternates:

Arne Hyttnes and Kristine Landmark (items 127-149)

Employee representatives:

Kjersti-Gro Lindquist (items 130-140 and 147-153)

Apologies:

Mona H. Sørensen

Office of the Supervisory Council:

Jan Frode Jakobsen (items 128, 132-143, 148-149 and 151-152)

Deloitte:

Henrik Woxholt (141-143 and 152)

Management:

Torbjørn Hægeland (127), Ida Wolden Bache (127, 150), Ingrid Solberg (127), Per Espen Lilleås (127), Olav Bø (127-128, 132-133), Arne Storaune Osnes (128), Per Gunnar Bull Karlsen (128), Yngve Slyngstad (132-146), Trond Grande (134-146), Karsten Kallevig (136-137, 141), Lars Dahl (141), Jan Thomsen (137), Dag Huse (128, 142-143), Stephen Hirsch (134-135), Ole Christian Bech-Moen (144-145), Lise Lindbäck (144-145), Mie Holstad (136, 138-140), Merethe Riddervold (134-135, 138-140, 142-145, 151-152), Hege Gjerde (134, 138-140, 143, 151-152), Jane Haugland (132-133, 138-140, 147, 152), Ørjan Agdesteen (128, 132-133, 138-140, 152), Magnus Eriksen (128, 138-139), Mads Kristensen (128, 132-143, 148-149, 151-152), Runar Malkenes (127-131, 134-149), Marius Ryel (130-131, 148-149), Alexander Behringer (130-131), Kathrine Stang Ottesen (132-133, 148-149), Charlotte Renshusløkken (147), Ingunn Valvatne (128-153), Bjarne Gulbrandsen (127-153), Kyrre Nilsen (127-130, 132-145, 147-153)

There were no comments on the meeting notice and agenda.

Item 127/2018 The current monetary policy situation

Discussion documents:

a. Recommendation on Norges Bank's policy rate – Executive Board's meeting of 15 August 2018
STRICTLY CONFIDENTIAL memo from Monetary Policy of 14 August 2018

b. The Executive Board's assessment and information on developments since the June 2018 Monetary Policy Report
STRICTLY CONFIDENTIAL memo from Monetary Policy of 10 August 2018

c. Report dated 9 August 2018 from the meeting between the Ministry of Finance and Norges Bank on 19 June 2018

d. Presentations from Monetary Policy dated 15 August 2018

Ida Wolden Bache outlined the main economic developments since the previous Monetary Policy Report and the assessment of developments in relation to defined monetary policy strategy. The Governor outlined management's recommendation.

Against this background, the Executive Board had an exchange of views. The Executive Board's assessment is that the upturn in the Norwegian economy appears to be continuing broadly in line with the picture presented in June. Underlying inflation is below the inflation target, but the driving forces indicate that it will rise further out. Overall, the outlook and the balance of risks do not appear to have changed substantially since the June 2018 Monetary Policy Report.

The Executive Board decided to keep the policy rate unchanged at 0.5%. The decision was unanimous.

Item 128/2018 Financial risk and management of the foreign exchange reserves 2018 Q2

Discussion documents: Memo from Markets and ICT of 9 August 2018
Memo from the Risk and Investment Committee of 14 August 2018
Memo from the Audit Committee of 14 August 2018

Olav Bø presented the main elements of the report.

Karen Helene Ulltveit-Moe and Egil Matsen reported on the discussions of the Audit Committee and Risk and Investment Committee, and the issues of particular concern to these committees, including developments in the foreign exchange reserves and the Bank's equity over time, and analyses of the portfolio's liquidity characteristics.

The Executive Board took note of the report on financial risk and management of the foreign exchange reserves for 2018 Q2. The report is to be sent to the Supervisory Council for information. A public version of the report is to be published on Norges Bank's website on 24 August.

Item 129/2018 Briefing on relevant matters for Central Banking Operations

The Governor gave a briefing on relevant matters for Central Banking Operations.

Item 130/2018 Minutes of the Executive Board meeting of 20 June 2018

Discussion document: Draft minutes

The Executive Board approved the minutes of its meeting of 20 June 2018.

Item 131/2018 Organisation of Norges Bank

Discussion document: CONFIDENTIAL memo from the General Secretariat of 10 August 2018

In its letter of 22 June 2018, the Ministry of Finance requests "the Executive Board's views on the composition and tasks of the Board and expert committee in the Central Bank Law Commission's model C" (NOU 2017:13).

The Governor and Ingunn Valvatne presented the draft response.

The Executive Board had an exchange of views and approved sending the response to the Ministry of Finance. The Governor was authorised to finalise the letter based on the contributions and comments at the meeting.

Executive Board members Karen Ulltveit-Moe and Kjetil Storesletten made a comment with regard to the composition of the Board and Committee, and to the tasks of these two bodies. The comment is noted in the response.

Item 132/2018 Operations report for Central Banking Operations (NBCBO) 2018 H1

Discussion document: Memo from Corporate and Shared Services of 9 August 2018

Ørjan Agdesteen presented the main elements of the report.

The Executive Board took note of the operations report for NBCBO for 2018 H1.

Item 133/2018 Operational risk and compliance in NBCBO – report for 2018 H1

Discussion documents: Memo from Governance, Risk and Compliance of 9 August 2018
Memo from the Audit Committee of 14 August 2018

Kathrine Stang Ottesen presented the main elements of the report.

Karen Helene Ulltveit-Moe reported on the Audit Committee's discussions and the issues of particular concern to the Committee, including the status of progress in the ongoing work on IT security. The Committee recommended that the Executive Board follows management's guidance.

The Executive Board took note of the report on operational risk and internal control in NBCBO for 2018 H1.

Item 134/2018 Norges Bank Investment Management (NBIM) – operations report for 2018 Q2

Discussion document: Memo from NBIM of 9 August 2018

Trond Grande presented the main elements of the report.

The Executive Board took note of the operations report for NBIM for 2018 Q2.

Item 135/2018 NBIM – Compliance and control – Report for 2018 Q2

Discussion documents: Memo from NBIM of 9 August 2018
Memo from the Audit Committee of 9 August 2018

Stephen Hirsch presented the main elements of the report.

Karen Helene Ulltveit-Moe reported on the Audit Committee's discussions and the issues of particular concern to the Committee, including events during the quarter and progress in following up audit projects. The Committee recommended that the Executive Board follows management's guidance.

The Executive Board took note of the report on compliance and control at NBIM for 2018 Q2.

Item 136/2018 Norges Bank Real Estate Management (NBREM) operations report 2018 Q2

Discussion document: Memo from NBREM of 3 August 2018

Mie Holstad presented the main elements of the report.

The Executive board took note of the operations report for unlisted real estate management for 2018 Q2.

Item 137/2018 NBREM compliance and control 2018 Q2

Discussion documents: Memo from NBREM of 3 August 2018
Memo from the Audit Committee of 14 August 2018

Jan Thomsen presented the main elements of the report.

Karen Helene Ulltveit-Moe reported on the Audit Committee's discussions and the issues of particular concern to the Committee, including the risk associated with staffing and the ability to attract and retain talented employees. The Committee recommended that the Executive Board follow management's guidance.

The Executive Board took note of the report on compliance and control for unlisted real estate management for 2018 Q2.

Item 138/2018 Budget update for Norges Bank 2018 H1

Discussion document: Memo from Corporate and Shared Services of 10 August 2018

Under the Supervisory Council's rules for Norges Bank, the Executive Board is to report on the status of overall expenditure for the whole of the Bank as at 30 June and 31 December each year as a minimum. This reporting is to include a status report on performance against the approved budget for the Bank's overall operating revenue, operating expenses and investments, and any significant reallocations and variations.

Ørjan Agdesteen presented the main elements of the report.

The Executive Board discussed the matter and took note of the budget report for Norges Bank for 2018 H1. The Governor was authorised to finalise the report based on the Executive Board's remarks. The report is to be submitted to the Supervisory Council.

Item 139/2018 Semiannual financial statements for Norges Bank in 2018

Discussion documents: Memo from Corporate and Shared Services of 9 August 2018
Memo from the Audit Committee of 14 August 2018

Ørjan Agdesteen presented the report.

Karen Helene Ulltveit-Moe presented the discussions on the Audit Committee and the aspects that particularly drew its attention, including the purpose of the report and the possibility to harmonise this reporting with other established reports. The Committee asked the Executive Board to decide how this reporting can be conducted most efficiently.

The Executive Board discussed the matter and took note of the semiannual financial statements for Norges Bank. The statements are to be submitted to the Supervisory Council for information. To ensure relevant and efficient overall reporting, the Executive Board expressed that future semiannual financial statements can be harmonised with other reports that are submitted to the Supervisory Council.

Item 140/2018 Budget for 2019 – process and ambition level

Discussion document: Memo from the General Secretariat of 9 August 2018

Ingunn Valvatne presented the matter for discussion. Reference was also made to presentations and discussions at the Executive Board's seminar on 14 August on benchmarking and on cost developments, cost drivers and cost efficiency measures in the Government Pension Fund Global (GPFG).

The Executive Board discussed the matter and took note of the budgeting plan for 2019. The Executive Board aims to first consider the limits for strategic efforts and any special cost reductions at the meetings on 19 September and 24 October. In further work with the budget for 2019, ordinary operating expenses are to be kept nominally and approximately unchanged from the 2018 budget.

Item 141/2018 NBREM Return and Risk 2018 Q2

Discussion documents: Memo from NBREM of 3 August 2018
Memo from the Risk and Investment Committee of 14 August 2018

Lars Dahl presented the main elements of the report.

Egil Matsen reported on the Risk and Investment Committee's discussions and the issues of particular concern to the Committee. The Committee recommended that the Executive Board follow management's guidance.

The Executive Board took note of NBREM's report on return and risk for unlisted real estate management for 2018 Q2.

Item 142/2018 NBIM Return and Risk 2018 Q2

Discussion documents: Memo from NBIM of 9 August 2018
Memo from the Risk and Investment Committee of 14 August 2018

Dag Huse presented the main elements of the report.

Egil Matsen reported on the Risk and Investment Committee's discussions and the issues of particular concern to the Committee, including the risk outlook for the GPFG and developments in the internal reference portfolios and the factor strategies. The Committee recommended that the Executive Board follow management's guidance.

The Executive Board took note of NBIM's report on return and risk for 2018 Q2.

Item 143/2018 Government Pension Fund Global (GPFG) – Public report for 2018 Q2

Discussion documents: Memo from NBIM of 9 August 2018

Memo from the Audit Committee of 14 August 2018

Yngve Slyngstad presented the main elements of the report.

Karen Helene Ulltveit-Moe reported on the Audit Committee's discussions and the issues of particular concern to the Committee. The Committee recommended that the Executive Board follow management's guidance.

Henrik Woxholt confirmed that nothing had come to Deloitte's attention during its review that led it to believe that the interim financial reporting had not in all material respects been prepared in accordance with relevant accounting standards.

The Executive Board approved the public report on the management of the Government Pension Fund Global (GPFG), including the interim financial reporting for the investment portfolio, for 2018 Q2. The report is to be submitted to the Supervisory Council for information.

Item 144/2018 GPFG – Rule for rebalancing the equity allocation

Discussion documents: Memo from NBIM of 9 August 2018
Memo from the Risk and Investment Committee of 14 August 2018

In a letter of 5 March 2018, the Ministry of Finance has asked Norges Bank to consider whether there is a need to revise the rule for rebalancing the GPFG's equity allocation once the phasing in of an increased equity allocation in the benchmark index is completed.

Yngve Slyngstad and Ole Christian Bech-Moen presented the main elements of the matter and the draft response.

The Executive Board discussed the matter and approved the submission of a letter to the Ministry of Finance in line with the discussion documents. The Governor was authorised to finalise the letter based on remarks and contributions from the Risk and Investment Committee and the Executive Board.

Item 145/2018 GPFG – Follow-up of the white paper on the management of the fund

Discussion document: Memo from NBIM of 9 August 2018

Yngve Slyngstad presented the matter for discussion.

The Executive Board took note of the information provided on the Standing Committee on Finance and Economic Affaires' Recommendation on Report to the Storting No. 13 (2017-2018) "The Government Pension Fund in 2018"and the Ministry of Finance's letter following the Storting's final consideration of the Report, and the schedule for the Executive Board's consideration of the advice and assessments to be submitted to the Ministry.

Item 146/2018 Briefing on current issues in investment management

Yngve Slyngstad gave a briefing on current issues in investment management.

Item 147/2018 Revision of the pay ceiling for employees in NBCBO who report to the Governor

Discussion document: Memo from the Governor of 10 August 2018

The Governor presented the matter for discussion.

Arne Hyttnes presented the discussions on the Remuneration Committee and the issues of particular concern to the Committee. The Committee recommended that the Executive Board follows the Governor's guidance.

The Executive Board discussed the matter and approved the revision of the salary cap for managers and other employees in NBCBO who report to the Governor in line with the proposals.

Item 148/2018 Personal trading rules for the Executive Board's external members etc.

Discussion document: Memo from General Counsel/GRC of 27 June 2018

Marius Ryel presented the matter for discussion.

The Executive Board discussed the matter and approved the amendments to the "Ethical Principles for External Members of Norges Bank's Executive Board" in line with the proposals and concrete comments from the meeting. The amendments enter into force on 1 September 2018.

The Executive Board requested that management work further on routines for arrangements with greater clarification of what should be considered inside information in relevant Executive Board documents.

Item 149/2018 On the need for establishing an external whistleblowing channel

Discussion document: Memo from General Counsel of 27 June 2018

Marius Ryel presented the matter for discussion.

The Executive Board discussed the matter and approved the submission of the attached letter to the Supervisory Council. The Governor was authorised to finalise the letter.

Item 150/2018 Amendments to the statutes for Norges Bank's fund for economic research

Discussion document: Memo from PPO of 8 August 2018

Ida Wolden Bache presented the matter for discussion.

The Executive Board approved the submission of the proposed amendments to Section 4 of the statutes for Norges Bank's fund for economic research to the Supervisory Council before submission to the Foundation Authority.

Item 151/2018 Status report and half-term update of the audit plan for 2018

Discussion documents: Memo from Internal Audit of 8 August 2018
Memo from the Audit Committee of 14 August 2018

Mads Kristensen presented a status report and an updated audit plan.

Karen Helene Ulltveit-Moe presented the discussions on the Audit Committee and the input it had provided on Internal Audit's proposals for the plan for 2018 H2.

The Executive Board approved Internal Audit's proposal and took note of the update on the status of audit projects.

Item 152/2018 Audit plan for 2018 from Deloitte

Discussion documents: Memo from Corporate and Shared Services of 9 August 2018
Memo from the Audit Committee of 14 August 2018

Henrik Woxholt presented the audit plans.

Karen Helene Ulltveit-Moe presented the discussions on the Audit Committee and the issues of particular concern to the Committee, including key audit matters for 2018. The Committee recommended that the Executive Board follows management's guidance.

The Executive Board took note of Deloitte's audit plan for financial auditing of Norges Bank for 2018.

Item 153/2018 Any other business

The Executive Board asked for an item summarising market reactions to the publication of the interest rate decision be added to the agendas of the meetings following monetary policy meetings.

The following were distributed for information together with discussion documents:

NBIM – GPFG Performance and Risk - Monthly Board Report May 2018
NBIM – GPFG Performance and Risk - Monthly Board Report June 2018
Programme for the Executive Board's seminar at Vindåsen on 14-15 August 2018