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:

Kjersti-Gro Lindquist (items 229-232) and Mona H. Sørensen (items 229-232)

Management:

Ida Wolden Bache (items 221-223), Henrik Borchgrevink (item 221), Olav Bø (items 221-223), Anne Berit Christiansen (items 222-223), Trond Grande (items 224-230), Bjarne Gulbrandsen (items 221-232), Anne-Kari Haug (items 222-223), Pål Haugerud (items 224-227), Mie Holstad (items 229-230), Dag Huse (items 225-227), Torbjørn Hægeland (items 221-223), Karsten Kallevig (items 224 and 228-230), Per Espen Lilleås (items 221-223), Runar Malkenes (items 221-227 and 231-232)), Nina L. Midthjell (items 221-223), Kyrre Nilsen (items 221-227 and 229-232), Kjetil Rakkestad (items 221-223), Merethe Riddervold (items 224-227 and 229-230), Yngve Slyngstad (items 224-230), Ingrid Solberg (items 221-223), Ylva Søvik (items 221-223), Ingunn Valvatne (items 224-225 and 230), John Tore Vatnar (items 225-227), Birger Vikøren (items 224-232)

There were no comments on the meeting notice and agenda.

Item 221/2018 Advice on the countercyclical capital buffer 2018 Q4

Discussion document:

a. STRICTLY CONFIDENTIAL memo from Financial Stability of 11 December 2018

b. Presentation by Financial Stability

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 4/18 (cf item 222/2018).

In its discussion, the Executive Board gave weight to high and rising household debt ratios. Property prices have risen rapidly for many years and are now at historically high levels. As a result, financial imbalances have built up. Looking ahead, low house price inflation and gradually rising interest rates are expected to dampen debt growth. The persistent and sharp rise in commercial property prices contributes to the build-up of financial imbalances.
Banks should become more resilient during an upturn. EU regulations will be implemented in 2019, which will reduce the capital required to achieve the same risk-weighted capital ratio. This means that banks can now withstand an increase in the buffer rate without having to make substantial adjustments.
On the basis of an overall assessment, the Executive Board decided to advise the Ministry of Finance to increase the buffer rate to 2.5 percent, effective from 31 December 2019. The decision was unanimous.

Item 222/2018 Draft monetary policy report with financial stability assessment 4/18

Discussion document: STRICTLY CONFIDENTIAL memo from Monetary Policy of 11 December 2018

Jon Nicolaisen gave a briefing on updated information and some adjustments made to the report after the Executive Board's meeting on 5 December.

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 223/2018).

Item 223/2018 The current monetary policy situation
Norges Bank's policy rate – 12 December 2018

Discussion documents:

a. STRICTLY CONFIDENTIAL memo from Monetary Policy of 11 December 2018

b. Report from the meeting between the Ministry of Finance and Norges Bank on 23 October 2018

c. Presentation by 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 evidence of a continuing upturn in the Norwegian economy. Spare capacity has gradually diminished, and capacity utilisation now seems to be close to a normal level. Underlying inflation is close to the inflation target of 2 percent.
If the policy rate is kept at the current level for a long time, price and wage inflation may accelerate and financial imbalances build up. That would increase the risk of a sharp economic downturn further out. Raising the policy rate rapidly ahead could stifle the upturn and lead to higher unemployment and inflation that is too low. Uncertainty surrounding the effects of higher interest rates suggests a cautious approach to interest rate setting.

Overall, the outlook and the balance of risks imply a gradual interest rate increase in the years ahead. The policy rate forecast is little changed, but the fall in oil prices and weaker global growth prospects imply a slightly slower rate rise than in the September Report. Inflation is projected to remain close to target in the coming years, at the same time as unemployment remains low. The policy rate path will be adjusted in response to changes in economic prospects.

The Executive Board decided to keep the policy rate unchanged at 0.75 percent. The Executive Board's current assessment of the outlook and balance of risks suggests that the policy rate will most likely be raised in March 2019. The decision was unanimous.

Item 224/2018 Real Estate Investment Board - update of the mandate

Discussion document: Memo from NBIM of 6 December 2018

Yngve Slyngstad presented the matter for discussion.

The Executive Board discussed the matter and approved the changes to the mandate for the Real Estate Investment Board.

Item 225/2018 Government Pension Fund Global (GPFG) - regular evaluation of the organisation of work on observation and exclusion

Discussion documents: Memo from NBIM of 6 December 2018
Memo from the Ownership Committee of 6 December 2018

In its letter of 5 November 2018, the Ministry of Finance asked Norges Bank to provide an account of the division of responsibilities between the Bank and the Council on Ethics, including how the exchange of information and cooperation function, and how work is being conducted to achieve a common understanding of the criteria of the guidelines for observation and exclusion from the GPFG. A review of the work to ensure consistency in dialogues with companies was also requested.

Egil Matsen presented the draft response, and the Ownership Committee's discussion and position.

The Executive Board discussed the matter and approved the submission of a letter to the Ministry of Finance in line with the attached draft. The Governor was authorised to finalise the letter based on the Executive Board's feedback at the meeting.

Item 226/2018 Council on Ethics recommendation of 24 October 2018 on exclusion of companies

Discussion document: Memo from Ownership Committee of 6 December 2018

Norges Bank has received from the Council on Ethics a recommendation of 24 October 2018 on exclusion of the company Halcyon Agri Corp Ltd The reason given for the recommendation is the risk that the company is responsible for severe environmental damage (cf Guidelines for observation and exclusion from the Government Pension Fund Global, Section 3 c).

Egil Matsen reported on the Ownership Committee's discussions and position.

The Executive Board endorsed the Ownership Committee's position:

• Halcyon Agri Corp Ltd should be excluded from the GPFG's portfolio.
• The Ministry of Finance is to be informed of the decision.
• The exclusion enters into force on 1 February 2019. The Governor is authorised to grant exemptions from the deadline in situations with challenging liquidity or other special situations. The Governor was authorised to set a date for publishing the decision.

Item 227/2018 Exercising active ownership in AngloGold Ashanti Ltd

Discussion documents: Memo from NBIM of 29 November 2018
Memo from the Ownership Committee of 6 December 2018

In June 2012, the Ownership Committee recommended excluding the company AngloGold Ashanti Ltd because of severe environmental damage and either serious or systematic violations of human rights. In October 2013, the Ministry of Finance decided not to follow the Council on Ethics' advice on exclusion, and instead requested that Norges Bank raise the issue of environmental damage with the company by exercising active ownership over a period of five years. By the end of this period, Norges Bank Investment Management (NBIM) will have assessed the exercise of active ownership of the company.

Egil Matsen presented the matter and the discussion on the Ownership Committee and the Committee's position.

The Executive Board concurred with the Ownership Committee's recommendation to extend the exercise of active ownership of AngloGold Ashanti Ltd by three years.

Item 228/2018 Briefing on relevant matters for NBIM

Yngve Slyngstad gave a briefing on relevant matters for NBIM.

Item 229/2018 Minutes of the Executive Board meeting of 5 December 2018

Discussion document: Draft minutes

The Executive Board approved the minutes of its meeting of 5 December 2018.

Item 230/2018 Schedule for work on strategy 2020-2022

Discussion document: Memo from General Secretariat of 7 December 2018

The Governor presented the matter for discussion.

The Executive Board discussed the matter and took note of the work on strategy 2020-2022. The Executive Board further provided feedback on the content of the strategy process.

Item 231/2018 Briefing on relevant matters for Norges Bank Central Banking Operations (NBCBO)

The Governor gave a briefing on relevant matters for NBCBO.

Item 232/2018 Any other business

There was no other business.

The following were distributed for information together with the discussion documents:

• GPFG - Change in Ministry of Finance's mandate
  Memo from NBIM of 6 December 2018
• Letter from the Council on Ethics of 15 November 2018 on the observation of companies
  Memo from the Ownership Committee of 7 December 2018
• Assessment of companies that are excluded or placed under observation
  Memo from the Ownership Committee of 7 December 2018
• Annual report from the Ownership Committee
  Memo from the Ownership Committee of 6 December 2018
• Real estate management – Report from meetings of the Real Estate Investment Board
  Memo from NBREM of 5 December 2018
• NBIM Report: GPFG Performance and Risk - October 2018