Present:

Executive Board:
Øystein Olsen, Jon Nicolaisen, Egil Matsen (items 110-120), Kjetil Storesletten, Karen Helene Ulltveit-Moe, Steinar Juel and Kristine Ryssdal

Alternates:
Arne Hyttnes and Kristine Landmark

Apologies:
Kathryn M. Baker

Employee representatives:
Mona H. Sørensen (items 121-125) and Kjersti-Gro Lindquist (items 121-125)

Office of the Supervisory Council:
Jan Frode Jakobsen (items 115-116, 119 and 122-124)

Management:
Ørjan Agdesteen (items 121-124), Ida Wolden Bache (items 110-113), Ole Christian Bech-Moen (items 115-116), Henrik Borchgrevink (item 110), Katrine Godding Boye (items 110-112), Anne Berit Christiansen (items 111-113), Monique Erlandsen Erard (item 110), Hege Gjerde (items 121-124), Trond Grande (items 115-120 and 122-124), Bjarne Gulbrandsen (items 115-125), Anne Kari Haug (items 111-112), Pål Haugerud (items 115-119 and 123-124), Jane Haugland (items 121-124), Dag Huse (items 117-119), Torbjørn Hægeland (items 110-112), Lise Lindbäck (items 115-116), Per Espen Lilleås (items 110-112), Runar Malkenes (items 110-118 and 121-125), Nina Larsson Midthjell (items 110-112), Kyrre Nilsen (items 110-119 and 121-125), Arne Osnes (items 110-112), Merethe Riddervold (items 115-119 and 122-124), Tove Katrine Sand (item 113), Yngve Slyngstad (items 115-120, 122 and 124), Ingvild Wold Strømsheim (items 111-112), Ylva Søvik (item 110), Ingunn Valvatne (items 115-116, 119 and 122-124), John Tore Vatnar (items 117-119), Birger Vikøren (items 121-125)
 

There were no comments on the meeting notice and agenda.

Item 110/2019   Recommendation to the Ministry of Finance on the countercyclical capital buffer 2019 Q2

Discussion document:

a. STRICTLY CONFIDENTIAL memo from Financial Stability of 17 June 2019

b. Presentation by Financial Stability 

Jon Nicolaisen provided an 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 2/19 (cf item 111/2019).

In its discussions, the Executive Board emphasised that financial imbalances have built up over a long period. Household debt is still growing faster than income, but the pace of growth has recently slowed somewhat. Corporate credit growth remains elevated and is higher than the rate of growth in the economy. After rising rapidly for a long period, house prices are at historically high levels. Over the past two years, house prices have risen less than household disposable income. In the commercial real estate market, the rapid rise in prices has slowed somewhat. Bank profitability is solid and losses are low, and banks have ample access to wholesale funding.

The Executive Board has decided to advise the Ministry of Finance to keep the countercyclical capital buffer rate at 2.5 percent from the end of 2019. The decision was unanimous.

Item 111/2019   Monetary Policy Report with financial stability assessment 2/19

Discussion document

• STRICTLY CONFIDENTIAL memo from Monetary Policy of 18 June 2019

Jon Nicolaisen presented a number of adjustments to the Report following its consideration by the Executive Board on 12 June 2019.

The Executive Board discussed the economic outlook, the monetary policy stance and the need for a countercyclical buffer for banks. The Executive Board approved the proposed "Executive Board’s Assessment" (cf interest rate decision in item 113/2019).

Item 112/2019   The current monetary policy situation

Norges Bank’s policy rate – 19 June 2019

Discussion document:

a. STRICTLY CONFIDENTIAL memo from Monetary Policy of 18 June 2019

b. Report from the meeting between the Ministry of Finance and Norges Bank on 7 May 2019

c. Presentation from Monetary Policy

Jon Nicolaisen outlined the main economic developments since the previous Executive Board meeting with particular emphasis on developments in the money, currency and capital markets.

In its assessment, the Executive Board notes that the monetary policy stance remains accommodative. Growth in the Norwegian economy is solid, and capacity utilisation is estimated to be somewhat above a normal level. Underlying inflation is a little higher than the inflation target. At the same time, trade tensions are a source of substantial global uncertainty. Uncertainty surrounding the effects of monetary policy suggests a cautious approach to interest rate setting. The overall outlook and balance of risks suggest that the policy rate will be increased somewhat further.

The upturn in the Norwegian economy appears to be a little stronger over the coming year than projected earlier. On the other hand, there are prospects for weaker external growth and lower foreign interest rates. The policy rate forecast indicates a slightly faster rate rise in the coming year than projected in the March Report, but the policy rate path is little changed further out. With a policy rate in line with the forecast, inflation is projected to remain close to the inflation target of 2 percent in the years ahead, 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 raise the policy rate by 0.25 percentage point to 1.25 percent. The Executive Board’s current assessment of the outlook and balance of risks suggests that the policy rate will most likely be increased further in the course of 2019. The decision was unanimous.

Item 113/2019   Bilateral loan to the IMF – one-year extension

Discussion document:
Memo from Monetary Policy of 6 June 2019 

Anne Berit Christiansen presented the discussion document.

The Executive Board discussed the matter and decided to recommend to the Ministry of Finance that Norges Bank extend its borrowing agreement with the IMF by one year until 31 December 2020.

Item 114/2019   Briefing on relevant matters for Norges Bank Central Banking Operations (NBCBO) 

The Governor gave a briefing on relevant matters for NBCBO.

Item 115/2019   Equity investments in emerging markets

Discussion document:

• Memo from NBIM of 12 June 2019
• Memo from the Risk and Investment Committee of 18 June 2019 

In its letter of 6 November 2018, the Ministry of Finance asked Norges Bank for its assessments of the geographical distribution and composition of the benchmark index for equities in the Government Pension Fund Global (GPFG). With the understanding of the Ministry, the questions in the two letters are answered (items 115/2019 and 116/2019).

Ole Christian Bech-Moen presented the draft letter.

Egil Matsen presented the discussions on the Risk and Investment Committee and the topics that particularly drew its attention, including alternative methods and rules for the composition of the index for emerging markets. The committee had some concrete feedback on the draft letter.

The Executive Board discussed the matter. A revised draft letter that takes into account feedback and comments from the Risk and Investment Committee and the Executive Board’s discussions is presented for final consideration at the Executive Board’s meeting of 14 August 2019.

Item 116/2019    Benchmark index for equities – Government Pension Fund Global

Discussion document:

• Memo from NBIM of 12 June 2019
• Memo from the Risk and Investment Committee of 18 June 2019 

Ole Christian Bech-Moen presented the draft letter.

Egil Matsen presented the discussions in the Risk and Investment Committee and the aspects that particularly drew its attention. The committee had some concrete feedback on the draft letter.

The Executive Board discussed the matter. A revised draft letter that takes into account feedback and comments from the Risk and Investment Committee and the Executive Board’s discussions is presented for final consideration at the Executive Board’s meeting of 14 August 2019.

Item 117/2019   Recommendation from the Council on Ethics of 8 April 2019

Discussion document:
Memo from the Ownership Committee of 17 June 2019 

Norges Bank has received a recommendation of 8 April 2019 from the Council on Ethics on exclusion of the company G4S plc. The reason given for the recommendation is the risk that the company is responsible for serious or systematic violations of human rights 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 the Guidelines for Observation and Exclusion from the Government Pension Fund Global).

Egil Matsen presented the discussions in the Ownership Committee and its position.

The Executive Board endorsed the Ownership Committee's position.

-      G4S plc is excluded from the Government Pension Fund Global’s portfolio.

-      The Ministry of Finance is to be informed of the decision.

-      The exclusion entered into force on 1 September 2019. The Governor is authorised to grant exemptions from the deadline in situations with challenging liquidity or other special situations. The Governor is authorised to set a date for publishing the decision.

 
Item 118/2019  Recommendations from the Council on Ethics of 8 May 2019  

Under Section 5(5) of the Guidelines for Observation and Exclusion from the Government Pension Fund Global, “The Council shall regularly assess whether the basis for observation or exclusion still exists. In light of new information, the Council may recommend that the Bank revoke an observation or exclusion decision.”

Norges Bank has received two recommendations from the Council on Ethics to revoke the exclusion of companies, cf items a) and b):

a)    Recommendation from the Council on Ethics of 8 May 2019 (1) to exclude companies
 
Discussion document:
Memo from the Ownership Committee of 17 June 2019 

In a letter of 8 May 2019, the Council on Ethics recommends to revoke the exclusion of Walmart Inc and Wal-Mart de Mexico SAB de CV from the Government Pension Fund Global. The companies have been excluded since 2006 for contributing to human rights violations in their own operations and in the companies’ supply chains. According to the recommendation, the companies have implemented measures to mitigate the risk of human rights violations. In the assessment of the Council on Ethics, there is no longer an unacceptable risk that the companies contribute to human rights violations in a manner that forms the basis for exclusion.

Egil Matsen presented the discussions in the Ownership Committee and its position.

The Executive Board concurred with the Ownership Committee’s recommendation:

-      The exclusion of Walmart Inc and Wal-Mart de Mexico SAB de CV is to be revoked.

-      The Ministry of Finance is to be informed of the decision.

-      Decisions to revoke exclusions should be published without undue delay after the decisions have been made by the Executive Board. Publication before transactions are made promotes clear communication. To minimise market impact as far as possible, the date of inclusion in the benchmark index should be further out than is currently the case. A letter is to be submitted to the Ministry of Finance requesting that the current publication practice be changed.

-      The Governor is authorised to set a date for publishing the decision.

b)    Recommendation from the Council on Ethics of 8 May 2019 (2) to revoke the exclusion of a company
 
Discussion document:
Memo from the Ownership Committee of 17 June 2019

In a letter of 8 May 2019, the Council on Ethics recommends that the exclusion of Grupo Carso de CV from the Government Pension Fund Global (GPFG) be revoked. The company has been excluded from the GPFG since 2011 for the production of tobacco through its ownership interest in the company Compahia Mercantil de Productos de Tabaco SA de CV. The company has confirmed to the Council on Ethics that it is no longer involved in the production of tobacco. In the assessment of the Council on Ethics, the basis no longer exists to exclude the company.

Egil Matsen presented the discussions in the Ownership Committee and its position.

The Executive Board concurred with the Ownership Committee’s recommendation:

-      The exclusion of Grupo Carso de CV is revoked.

-      The Ministry of Finance is to be informed of the decision and is requested to reinclude the company in the benchmark index in a similar manner as for item a).

-      The Governor is authorised to set a date for publishing the decision.

Item 119/2019  The Executive Board’s investment mandate for the CEO of NBIM – counterparty requirements

Discussion document: 
Memo from NBIM of 12 June 2019 

Yngve Slyngstad and Dag Huse presented the matter for discussion and referred to the review of the topic at the seminar of 18 June 2019.

The Executive Board discussed the matter and endorsed the change to the counterparty requirements concerning securities lending. The Executive Board asked management to return with a proposed revision of the mandate that takes into account the Executive Board’s remarks at the meeting in August.  

Item 120/2019     Briefing on current issues in investment management 

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

Item 121/2019   Minutes of the Executive Board meeting of 12 June 2019

Discussion document
Draft minutes

The Executive Board approved the minutes of its meeting of 12 June 2019.

Item 122/2019     Strategy, plan and budget process for 2020

Discussion document:
Memo from the General Secretariat/Corporate and shared services of 13 June 2019

Ørjan Agdesteen presented the matter for discussion.

The Executive Board discussed the matter and took note of the strategy plan, plan and budget for 2020.

Item 123/2019   Strategy 2022

Discussion document
Memo from the General Secretariat of 17 June 2019 

Jon Nicolaisen presented Norges Bank’s draft strategy for 2022. The draft is based on the guidelines from the Executive Board’s strategy seminar of 3 and 4 April 2019.

The Executive Board discussed the matter and provided input on the proposed strategy for 2022. A final proposed strategy is to be presented to the Executive Board on 11 September 2019.

Item 124/2019   Strategic plan for NBIM for 2020-2022

Discussion document:
Memo from NBIM of 13 June 2019 

Yngve Slyngstad presented the discussion document. The draft is based on the discussions the Executive Board has had on the management strategy of the GPFG at the seminars of 3 and 4 April, 25 April and 18 June.

The Executive Board discussed the matter and provided input to the proposed strategy plan. An overall proposed strategy plan for NBIM is to be presented at the meeting on 14 August before final consideration at the Executive Board’s meeting of 11 September 2019. 

Item 125/2019    Any other business 

The Governor gave a briefing on the status of the work to reorganise administrative functions.

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

• Agenda for the GPFG seminar of 18 June 2019
• GPFG – Follow-up of unlisted real estate investments in France
  Memo from NBIM of 13 June 2019
• Meeting schedule 2020 for the Executive Board and the Committee for Monetary Policy and Financial Stability
  Memo from the General Secretariat of 18 June 2019
• Minutes of the Executive Board’s Risk and Investment Committee meeting of 23 April 2019