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Norges Bank
1
Executive Board meeting30 May 2007
Norges Bank
2
0
1
2
3
4
5
6
7
8
9
World NorthAmerica
WesternEurope
Japan Asiaexcl.
Japan
EasternEurope
LatinAmerica
Forecasts April
Forecasts May
0
1
2
3
4
5
6
7
8
World NorthAmerica
WesternEurope
Japan Asiaexcl.
Japan
EasternEurope
LatinAmerica
Forecasts April
Forecasts May
2007 2008
Growth forecasts Consensus ForecastsGDP. Percentage change on previous year
Source: Consensus Forecasts
Norges Bank
GDP - China and IndiaGrowth on same quarter previous year
0
2
4
6
8
10
12
2000 2001 2002 2003 2004 2005 2006 2007
0
2
4
6
8
10
12
Source: Reuters
China
India
Norges Bank
4
House prices1) and housing starts in the USSeasonally adjusted. 12-month change2)
January 2003 – March 2007 (Housing starts to April)
-35
-25
-15
-5
5
15
2003 2004 2005 2006 2007
-35
-25
-15
-5
5
15
1) Median price for dwellings2) 3-month moving average
Housing starts
Existing dwellingsNew dwellings
Sources: Reuters and Norges Bank
Norges Bank
5
10
20
30
40
50
60
70
80
90
2002 2003 2004 2005 2006 2007 2008 2009
10
20
30
40
50
60
70
80
90
Oil price Brent Blend and futures prices USD per barrel. 3 January 2002 – 28 May 2007
28 May 2007
Sources: Telerate, IPE and Norges Bank
Previous monetary policy meeting (24 April 2007)
Norges Bank
6
80
90
100
110
120
130
140
150
Jan 06 Mar 06 May 06 Jul 06 Sep 06 Nov 06 Jan 07 Mar 07 May 07
80
90
100
110
120
130
140
150
Equities Indices,1 January 2006 = 100. 1 January 2006 – 28 May 2007
Euro area
US
Japan
Norway
Sources: Reuters
Emerging economies
Norges Bank
Sources: Reuters, Bloomberg and Norges Bank
0
1
2
3
4
5
6
Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10
0
1
2
3
4
5
6
US
Euro area
25 May 2007
Previous monetary policy meeting (24 April 2007)
Sweden
UK
Key policy rates and forward ratesAs at previous monetary policy meeting and as at 25 May 2007
7
Norges Bank
85
88
91
94
97
100
103
2002 2003 2004 2005 2006 2007 2008 2009 2010
-1
0
1
2
3
4
5
Sources: Bloomberg and Norges Bank
I-44 (left-hand scale)
Weighted interest rate differential (right-hand scale)
25 May 2007
1) A rising curve denotes an appreciation of the krone.
3-month interest rate differential and import-weighted exchange rate (I-44)1)
January 2002 – December 2010
Average 1-25 May 2007
8
Previous monetary policy meeting (24 April 2007)
Norges Bank
9
Norway's terms of trade2000 Q1 – 2007 Q1
0.8
1.0
1.2
1.4
00 Q1 01 Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1
0.8
1.0
1.2
1.4
Sources: Statistics Norway and Norges Bank
Overall terms of trade
Terms of trade traditional goods and services
Norges Bank
10
Inflation and interval for underlying inflation1) 12-month change. Per cent. January 2002 – April 2007
-2
0
2
4
6
2002 2003 2004 2005 2006 2007
-2
0
2
4
6
Highest indicator
Lowest indicator
CPI
Sources: Statistics Norway and Norges Bank
1) Highest and lowest indicator of the CPI-ATE, a weighted median and a trimmed mean of the sub-indices in the CPI.
Norges Bank
11
-3
-2
-1
0
1
2
3
Jun 04 Dec 04 Jun 05 Dec 05 Jun 06 Dec 06 Jun 07 Dec 07
-3
-2
-1
0
1
2
3
Sources: Statistics Norway and Norges Bank
Goods and services produced in Norway (0.7)1)
1) Norges Bank's projections.
Imported consumer goods (0.3)1)
CPI-ATE
CPI-ATE Total and by supplier sector. 12-month change. Per cent
June 2004 – April 2007
Norges Bank
12
2220
2250
2280
2310
2340
2370
2400
2430
2460
1999 2001 2003 2005 2007 1999 2001 2003 2005 2007
0
2
4
6
Sources: Statistics Norway and Norwegian Labour and Welfare Organisation (NAV)
Labour market
1) The changes to the LFS have resulted in a break in the time series between 2005 and 2006.
LFS unemployment
Registered unemployed
EmploymentIn 1000s
UnemploymentPer cent. Seasonally adjusted
LFS1)
QNA
Norges Bank
14
Average monthly real wage growth in Poland
12-month growthUnemployment rate
Monthly figures. January 2001 – April 2007
-5
0
5
10
15
20
25
2001 2003 2005 2007
Total
Construction
Source: Reuters
0
5
10
15
20
25
2001 2003 2005 2007
Estonia
Poland
Latvia
Lithuania
Slovakia
Norway
Norges Bank
15
Manufacturing output index Volume index. Seasonally adjusted 3-month moving average and trend
94
96
98
100
102
104
106
108
110
2002 2003 2004 2005 2006 2007
94
96
98
100
102
104
106
108
110
Source: Statistics Norway
3-month moving average
Trend
Norges Bank
16
Indicator of resource shortage - business tendency survey for manufacturing
Per cent. 1983 Q1 – 2007 Q1
0
10
20
30
40
50
60
1983 1987 1991 1995 1999 2003 2007
0
10
20
30
40
50
60
Source: Statistics Norway
Norges Bank
17
-40
0
40
80
120
160
200
1997 1999 2001 2003 2005 2007
-40
0
40
80
120
160
200
Source: Statistics Norway
Annual growth in mainland enterprise sector credit, liquid assets and investment level
In billions of current NOK. Monthly figures. January 1997 – March 2007
1) Gross fixed capital formation. Mainland Norway excl. dwellings and public sector. Total last four quarters
Credit (C3)
Fixed investment1)
Liquid assets (M2)
Norges Bank
18
-30
-15
0
15
30
45
1992 1994 1996 1998 2000 2002 2004 2006
-30
-15
0
15
30
45
Source: TNS Gallup
TNS Gallup's household trend indicatorTrend. 1992 Q3 – 2007 Q2
Norges Bank
19
Retail sales index12-month growth. 3-month moving average. Per cent
January 2000 – February 2007
-2
0
2
4
6
8
10
Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07
-2
0
2
4
6
8
10
Sources: Statistics Norway and Norges Bank
Norges Bank
20
Household net lending and net financial wealth to income ratio
Last four quarters. 1997 Q1 - 2006 Q4
-80
-60
-40
-20
0
20
40
60
80
100
1997 1999 2001 2003 2005 2007
Source: Norges Bank
Net lending2)
Net financial wealth to income ratio1)
1) Net assets as a share of disposable income.2) In billions of NOK. Adjusted for estimated reinvested share dividends for 2000 – 2005.
2006
Net lending -60.9bn
+ Net revaluations 92.2bn
= Net change in assets 31.2bn
Norges Bank
21
House prices and household debtChange on same month/quarter previous year. Per cent
January 2001 – April 2007 (C2 March)
-5
0
5
10
15
20
25
2001 2002 2003 2004 2005 2006 20076
8
10
12
14
2001 2002 2003 2004 2005 2006 2007
House prices Household debt (C2)
Sources: Norwegian Association of Real Estate Agents, Association of Real Estate Agency Firms, Finn.no, ECON, Statistics Norway and Norges Bank
Real estate business
Statistics Norway
Norges Bank
22
Housing starts and housing investmentTotal over 12 months/4 quarters
January 2000 – March 2007 (Housing starts 2006 Q4)
10
20
30
40
2000 2001 2002 2003 2004 2005 2006 2007
20
40
60
80
100
Sources: Statistics Norway and Norges Bank
1) Constant 2004 prices.
Housing starts, in thousands (left-hand scale)
Housing investment, in billions of NOK1)
(right-hand scale)
Norges Bank
23
0
100
200
300
400
2002 2003 2004 2005 2006 2007
0
100
200
300
400
Commercial building startsArea (1000 m2)
3-month moving average. January 2002 – March 2007
Sources: Statistics Norway and Norges Bank
Norges Bank
Sources: Reuters and Norges Bank
3.0
3.5
4.0
4.5
5.0
5.5
6.0
07 Q2 07 Q4 08 Q2 08 Q4 09 Q2 09 Q4 10 Q2 10 Q4
3.0
3.5
4.0
4.5
5.0
5.5
6.0
Market 25 May 2007 Baseline scenario MPR 1/07
Key policy rate in baseline scenario and estimated forward rates1)
Per cent. At 25 May 2007
1) A credit risk premium and a technical difference of 0.20 percentage point have been deducted to make the forward rates comparable with the key policy rate.
Market previous monetary policy meeting (24 April 2007)
24
Market cut-off MPR 1/07 (9 March 2007)
Norges Bank
3-month real interest rate1) and the normal real interest rate
Per cent. 1996 Q1 - 2007 Q1
0
1
2
3
4
5
6
7
1996 1998 2000 2002 2004 2006
0
1
2
3
4
5
6
7
Interval for normal real interest rate
Real interest rate
Source: Norges Bank 25
1) 3-month money market rate deflated by the 12-quarter moving average (centred) of inflation measured by the CPI.
Projections for the CPI from MPR 1/07 form the basis for this estimate.
Norges Bank
26
-1
0
1
2
3
4
2005 2006 2007 2008 2009 2010
-1
0
1
2
3
4
0
1
2
3
4
2005 2006 2007 2008 2009 2010
0
1
2
3
4
0
1
2
3
4
5
6
7
8
9
2005 2006 2007 2008 2009 2010
0
1
2
3
4
5
6
7
8
9
-2
-1
0
1
2
3
4
2005 2006 2007 2008 2009 2010
-2
-1
0
1
2
3
4
Baseline scenario in Monetary Policy Report 1/07
30%
50%
70%
90%
Output gap
CPI-ATE
Key policy rate
CPI
Sources: Statistics Norway and Norges Bank
Norges Bank
27
Monetary policy strategy
• The interest rate path presented in Monetary Policy Report 1/07
reflects the Executive Board's trade-off between bringing inflation up
to target and stabilising developments in output and employment.
• In the light of this trade-off, the interest rate will be increased
gradually so that we can assess the effects of interest rate changes
and other new information about economic developments.
• The key policy rate should lie in the interval 4 – 5% in the period to
the publication of the next Report on 27 June 2007, conditional on
economic developments that are broadly in line with the projections.
Monetary Policy Report 1/07
Norges Bank
28
Executive Board meeting30 May 2007