Present:

Executive Board:

Øystein Olsen (items 164-174), Jon Nicolaisen, Egil Matsen, Kjetil Storesletten, Karen Helene Ulltveit-Moe, Kathryn M. Baker, Steinar Juel and Kristine Ryssdal (items 164-173)

Alternates:

Arne Hyttnes and Kristine Landmark

Employee representatives:

Kjersti-Gro Lindquist (items 172-176) and Mona H. Sørensen (items 172-176)

Office of the Supervisory Council:

Jan Frode Jakobsen (items 170 and 175)

Management:

Ørjan Agdesteen (items 174-175), Ida Wolden Bache (items 164-166), Henrik Borchgrevink (items 164-166), Olav Bø (items 164-166 and 175), Hege Gjerde (item 174), Trond Grande (items 170-171 and 173-174), Anna Grinaker (item 168), Anders Grønli (item 168), Bjarne Gulbrandsen (items 164-176), Carl-Axel Hagen (item 168), Jane Haugland (items 168 and 174-175), Torbjørn Hægeland (items 164-168), Karsten Kallevig (item 173), Per Espen Lilleås (items 164-166), Simen Lutnes (item 175), Runar Malkenes (items 164-167 and 173-174), Kyrre Nilsen (items 164-176), Arne Osnes (items 164-166), Merethe Riddervold (item 170), Marius Ryel (items 167-168), Yngve Slyngstad (items 170-171 and 173-174), Ingrid Solberg (items 164-166), Ylva Søvik (item 167), Bent Vale (item 167), Birger Vikøren (items 167-176), Sindre Weme (items 164-167), Steinar Årdal (item 175)

There were no comments on the meeting notice and agenda.

Item 164/2018 Advice to the Ministry of Finance on the countercyclical capital buffer

Discussion documents:

a. Advice on the countercyclical capital buffer 2018 Q3
STRICTLY CONFIDENTIAL memo from Financial Stability of 18 September 2018

b. Presentation from Financial Stability

Jon Nicolaisen presented a status update of the decision basis for Norges Bank's advice to the Ministry of Finance on the countercyclical capital buffer. The basis for the recommendation is to be presented in Monetary Policy Report 3/17 (cf item 165/2018).

In the discussion, the Executive Board emphasised that household debt ratios continue to rise, but that debt growth has slowed somewhat over the past year. Looking ahead, gradually rising interest rates, housing completions and low population growth are expected to restrain house price inflation. The pronounced rise in commercial real estate prices in recent years has increased the risk of a marked decline in prices further out. The overall assessment of financial imbalances is little changed since 2018 Q2. 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 165/2018 Monetary Policy Report with financial stability assessment 3/18

Discussion document: STRICTLY CONFIDENTIAL memo from Monetary Policy of 18 September 2018

Jon Nicolaisen gave a briefing on some adjustments made to the report after the Executive Board's meeting on 12 September 2018.

The Executive Board discussed the economic outlook, the monetary policy stance and the need for a countercyclical buffer at banks. The Executive Board approved the proposed "Executive Board's assessment" (cf the interest rate decision under item 166/2018).

Item 166/2018 The current monetary policy situation – interest rate decision

Discussion documents:

a. Norges Bank's policy rate – Meeting of 19 September 2018
STRICTLY CONFIDENTIAL memo from Monetary Policy of 18 September 2018

b. Report from the meeting between Norges Bank and the Ministry of Finance on 14 August 2018

c. Presentation from Monetary Policy

Jon Nicolaisen presented a review of economic developments since the previous Executive Board meeting with particular emphasis on developments in money, foreign exchange and capital markets.

In its assessment of monetary policy, the Executive Board gave weight to the continuing upturn in the Norwegian economy. Spare capacity is gradually diminishing and capacity utilisation now seems to be close to a normal level. Underlying inflation is close to the inflation target of 2 percent.

Overall, the outlook and the balance of risks imply a gradual interest rate increase in the years ahead. If the key policy rate is kept at the current level for too long, price and wage inflation may accelerate and financial imbalances may build up further. That would increase the risk of a sharp economic downturn further out. Uncertainty surrounding the effects of higher interest rates suggests a cautious approach to interest rate setting.

The interest rate outlook is little changed from the June Report. With a gradual interest rate increase, inflation is projected to be close to the target some years ahead, at the same time as unemployment remains low.

The Executive Board decided to raise the key policy rate by 0.25 percentage point to 0.75 percent. The Executive Board's current assessment of the outlook and balance of risks suggests that the key policy rate will most likely be increased further in 2019 Q1. The decision was unanimous.

Item 167/2018 Consultation response on bank recovery and resolution regulations

Discussion document: Memo from Financial Stability of 11 September 2018

Torbjørn Hægeland presented the matter for discussion.

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 discussion at the meeting

Item 168/2018 Consultation response – Operation of critical information systems in Norway (regulatory proposal for a new Security Act)

Discussion document: Memo from Financial Stability and Corporate and Shared Services Security Unit of 14 September 2018

Torbjørn Hægeland presented the matter for discussion.

The Executive Board discussed the matter and approved further preparation of the consultation letter. A revised draft letter will be submitted for comment to the members of the Executive Board before submission to the Ministry of Defence.

The matter of identifying national critical functions will be submitted to the Bank. The Executive Board will be kept informed on the matter.

Item 169/2018 Briefing on relevant matters for Norges Bank Central Banking Operations (NBCBO)

There were no matters for discussion.

Item 170/2018 Supervisory review – follow-up on changes to the Management Mandate for the Government Pension Fund Global (GPFG)

Discussion document: Memo from the General Secretariat of 14 September 2018

Birger Vikøren presented the matter for discussion. Jan Frode Jakobsen provided supplementary comments on the supervisory review.

The Executive Board discussed the matter and approved the request for a letter to be sent to the Supervisory Council based on the draft. The Governor was authorised to finalise the letter.

Item 171/2018 Briefing on relevant matters for Norges Bank Investment Management (NBIM)

Yngve Slyngstad gave a briefing on relevant matters for NBIM.

Item 172/2018 Minutes of the Executive Board meeting of 12 September 2018

Discussion document: Draft minutes

The Executive Board approved the minutes of its meeting of 12 September 2018.

Item 173/2018 Investment strategy and organisation of Norges Bank Real Estate Management (NBREM)

Discussion document: Memo from the Governor of 17 September 2018

The Governor presented the matter for discussion and referred to discussions from the Executive Board's seminar at Vindåsen on 14 August. Yngve Slyngstad and Karsten Kallevig provided supplementary reports.

The Executive Board discussed the matter and decided that the strategy for unlisted real estate investment is to be changed with the aim of stabilising the allocation to unlisted real estate at approximately today's level until end-2019. A revised strategy can be expected to be implemented with around 100 employees at end-2019. The budget proposal for 2019 is to reflect these changes.

The Executive Board asked that the work on a new strategy for unlisted real estate commence in autumn 2018.

Management also brought to the attention of the Executive Board the matter of changes in the investment mandates of the CEOs of NBIM and NBREM in line with the approved changes to the strategy.

Item 174/2018 NBIM – budget 2019

Discussion document: Memo from NBIM of 14 September 2018

Trond Grande presented the matter for discussion.

The Executive Board discussed the matter and took note of the provisional budget for investment management. The Executive Board assumes that the proposed budget for 2019 with staffing provisions can still be approved within the Executive Board's tolerance limit for operational risk, and that adjustments to the strategy for external management are based on thorough cost-benefit assessments.

A combined 2019 budget proposal for investment management and a draft letter to the Ministry of Finance with a proposed ceiling for management costs for GPFG 2019 are to be presented for approval at the Executive Board meeting of 24 October 2018.

A final 2019 budget proposal is to be presented for approval at the Executive Board meeting of 21 November 2018.

Item 175/2018 Budget for Norges Bank Central Banking Operations (NBCBO) for 2019 – DiffIT status

Discussion document: Memo from Markets and ICT of 13 September 2018

Olav Bø and Steinar Årdal presented a status report on the competitive tender for IT operations for NBCBO and general plans for the Differentiated IT portfolio (DiffIT) project.

The Executive Board discussed the preliminary cost estimates and took note of the presentation. The Executive will revisit the matter in connection with the budget for 2019.

Item 176/2018 Any other business

There was no other business.

The following were distributed for information together with discussion documents:

• Memo from NBIM of 17 September 2018 – Government Pension Fund Global – Report and presentation from meeting with the Ministry of Finance