norges bank 11 executive board meeting 15 october 2008

Norges Bank

11

Executive Board meeting15 October 2008

Norges Bank

2Source: Bloomberg

0

200

400

600

800

1000

1200

Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08

0

200

400

600

800

1000

1200

JPMorgan Chase

iTraxx Europe index

Goldman Sachs

Morgan Stanley

Price of credit default insurance Large international banks. 5-year CDS prices. Basis points.

2 July 2007 – 13 October 2008

Bank of America

DnB NOR

UBS

Norges Bank

3

2

3

4

5

6

7

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

2

3

4

5

6

7

Sources: DnB NOR Markets, Bloomberg and Thomson Reuters

UK

Germany

Effective yields on covered bonds5-7 years average term to maturity. Percentage points

5 January 2004 – 10 October 2008

Spain

Denmark

IrelandNorway1)

1) The regulation relating to covered bonds entered into force on 01.06.07

Norges Bank

4

Difference between money market rates andexpected key rates1)

Percentage points. 5-day moving average. 2 July 2007 – 13 October 2008

0

0.4

0.8

1.2

1.6

2

2.4

2.8

3.2

3.6

Jul-07 Dec-07 May-08 Oct-08

3-month US3-month UK3-month Norway3-month Euro area

Jul-07 Dec-07 May-08 Oct-08

0

0.4

0.8

1.2

1.6

2

2.4

2.8

3.2

3.612-month US12-month UK12-month Norway12-month Euro area

Sources: Bloomberg, Thomson Reuters and Norges Bank

1) The expected key rate is measured by the Overnight Index Swap (OIS). ForNorway, the estimates are based on key policy rate expectations in the market.

Norges Bank

5

40

50

60

70

80

90

100

110

120

130

140

Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08

40

50

60

70

80

90

100

110

120

130

140

EquitiesTotal return. 1 July 2007 = 100. 1 July 2007 – 13 October 2008

Source: Thomson Reuters

US, S&P 500

Emerging markets, MSCI

Norway, OSEBX

Europe, Stoxx

Japan, Topix

Norges Bank

6

Implied volatility from equity optionsPer cent. 1 January 2005 – 13 October 2008

0

10

20

30

40

50

60

70

80

90

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

0

10

20

30

40

50

60

70

80

90

Sorces: Thomson Reuters and Oslo Børs

Europe

Norway

US

Norges Bank

7

Global Risk IndexExpected volatility between USD, EUR and JPY in per cent1)


0

5

10

15

20

25

30

Jan-05 Jan-06 Jan-07 Jan-08

0

5

10

15

20

25

30

Source: Bloomberg1) GRI is based on implied volatility derived from prices on 3-month

currency options between EUR, USD and JPY (equally weighted).

Norges Bank

8

-4

-3

-2

-1

0

1

2

2005 2006 2007 2008

-4

-3

-2

-1

0

1

2

Lower risk willingness

Higher risk willingness

Total risk index1)

Daily observations. 1 January 2000 - 13 October 2008

Sources: Thomson Reuters and Norges Bank1) Compound indicator based on arithmetic

mean of seven financial market components

Norges Bank

9

85

88

91

94

97

100

103

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

-1

0

1

2

3

4

5

Sources: Thomson Reuters and Norges Bank

I-44 (right-hand

scale)

Weighted interest rate differential (left-hand scale)

25 June 2008

13 October 2008

1) A rising curve denotes an appreciation of the krone.

3-month interest rate differentialand import-weighted exchange rate (I-44)1)

January 2002 – December 2011

13 October 2008

Norges Bank

10

Implied volatility in the Norwegian exchange marketBased on 1-month currency option prices.


0

3

6

9

12

15

18

21

24


0

3

6

9

12

15

18

21

24Volatility EURNOK Volatility USDNOK

Source: Bloomberg

Norges Bank

11

0

20

40

60

80

100

120

140

160

2002 2004 2006 2008 2010

0

20

40

60

80

100

120

140

160

0

50

100

150

200

250

300

350

2002 2004 2006 2008

0

50

100

150

200

250

300

350Industrials

Non-food agriculturals

Metals

Food

All items

1) I XDR

20.06.08 (MPR 2/08)

13.10.08

Oil price (Brent Blend)in USD per barrel

Futures prices (broken lines)

International commodity prices1)

Index. Week 1 2002 = 100 Week 1 2002 – week 40 2008

Sources: Thomson Reuters, Statistics Norway and Norges Bank

Norges Bank

12

Net exports from G-7 to emerging economiesContribution to GDP growth in the G-7 countries .

Percentage units. 1992 Q1 – 2008 Q2

Source: OECD

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1992 1995 1998 2001 2004 2007

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

Norges Bank

13

Growth forecasts WEO1)

GDP. Percentage change on previous year

-1

0

1

2

3

4

5

6

7

8

9

10

US Euro UK China 26 TP India

IMF April

IMF Oct

-1

0

1

2

3

4

5

6

7

8

9

10

US Euro UK China 26 TP India

IMF April

IMF Oct

2008 2009

Sources: IMF and Norges Bank1) World Economic Outlook

Norges Bank

14

-1

0

1

2

3

4

5

6

7

8

9

10

11

12

US Euro UK Japan China India

IMF April

IMF Oct

-1

0

1

2

3

4

5

6

7

8

9

10

11

12

US Euro UK Japan China India

IMF April

IMF Oct

2008 Q4

Source: IMF1) IMF forecasts from July and October

Growth forecasts WEO1)

GDP. Percentage change on previous year

2009 Q4

1)1) 1)1)

Norges Bank

15

-5

0

5

10

15

20


-5

0

5

10

15

20

US


-5

0

5

10

15

20


-5

0

5

10

15

20

Rise in consumer prices abroad12-month change. Per cent. January 2002 – September 2008

Russia

Brazil

India1)

China

UK

Euro areaJapan

Sweden

1) Wholesale prices

Norges Bank

16

0

1

2

3

4

5

6

7

Jun-07 Jun-08 Jun-09 Jun-10

0

1

2

3

4

5

6

7

Sources: Thomson Reuters og Norges Bank

US

Euro area

13 October 2008

Market after MPR 2/08 (25 June)

Sweden

UK

Key rates and forward ratesPer cent. 1 June 2007 – 13 October 2008

Norges Bank

1717

-2.5

0

2.5

5

2002 2003 2004 2005 2006 2007 2008

-2.5

0

2.5

5

CPI

CPIXE1)

Consumer prices12-month change. Per cent. January 2002 – September 2008

1) CPIXE: CPI adjusted for tax changes and excluding temporary changes in energy pricesSources: Statistics Norway and Norges Bank

Norges Bank

18

National Budget 2009

• A structural, non-oil deficit of NOK 92 billion in 2009 equals the expected real return on the Fund. The Government Pension Fund – Global estimated at NOK 2300 billion at the start of 2009

• The deficit increases by 14 billion 2009-NOK from 2008 to 2009, or 0.7 percentage point of trend GDP

• Nominal underlying growth in spending in the national budget of 7.8 per cent in 2009. Nominal growth in mainland GDP estimated at 5.7 per cent

Norges Bank

19

90

100

110

120

130

140

150


90

100

110

120

130

140

150


90

100

110

120

130

140

150


90

100

110

120

130

140

150

Trend

Manufacturing production indexSeasonally adjusted volume index. 3-month moving average.

January 2002 – August 2008

3-month moving average

Capital goods

Intermediate goods

Consumer goods

Norges Bank

20

-3

-2

-1

0

1

2

3

4

5

Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08-3

-2

-1

0

1

2

3

4

5

Actual and expected productionManufacturing, building and construction

Production for home market

Market outlook

Exports

Suppliers to petroleum industry

Building and construction

IncreasingIncreasing

Source: Norges Bank and Norges Bank Regional Network

Norges Bank

21

Extra round of phone callsNorges Bank’s regional network

• Private consumption– Decline in travel and restaurant sectors in recent weeks

• Investment– Sharp decline in building starts second half of 2008– Pronounced slowdown in commercial real estate in recent

months– Weaker investment prospects in retail trade and services

• Employment– Decline in employment in building and construction in past

couple of months and prospects for further decline – Decline in employment in some service industries supplying

the household sector– Increased supply of labour

Norges Bank

22

130

140

150

160

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

130

140

150

160

Index of commodity consumption Volume. Seasonally adjusted. January 2005 – April 2009

Source: Statistics Norway

Norges Bank

23

-100

-80

-60

-40

-20

0

20

40

60

2003 2004 2005 2006 2007 2008

-100

-80

-60

-40

-20

0

20

40

60

Household net lendingTotal past four quarters. In billions of NOK. 2003 Q1 – 2008 Q2

Financial sector accounts (FINSE)

National accounts

National accounts, excludingreinvested dividends

Sources: Statistics Norway and Norges Bank

Norges Bank

24

1

2

3

4

5

6

1998 2000 2002 2004 2006 2008

1

2

3

4

5

6

Unemployed Percentage of labour force. Seasonally adjusted.

January 1998 – August 2008

Registered unemployed and on labour market programmes

LFS unemployment

Registered unemployed

Sources: Statistics Norway, Norwegian Labour and Welfare Administration (NAV) and Norges Bank

Norges Bank

25

2380

2400

2420

2440

2460

2480

2500

2520

2540

Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08

2380

2400

2420

2440

2460

2480

2500

2520

2540

Source: Statistics Norway

Employment (LFS)In 1000s of persons. Seasonally adjusted. June 2006 – July 2008

Norges Bank

26

-5

0

5

10

15

20

25

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

-5

0

5

10

15

20

25Credit to enterprises1)

Property prices and creditGrowth from same month/half-year previous year. Per cent.

Credit to households

1) Non-financial enterprises mainland Norway.

House prices

Sources: Norwegian Association of Real Estate Agents, Association of Real Estate Agency Firms, Finn.no, ECON Pöyry, Statistics Norway and Norges Bank

Norges Bank

27

3.5

4.5

5.5

6.5

7.5

8.5

Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08

3.5

4.5

5.5

6.5

7.5

8.5

Key policy rate, money market rate1) and banks’ lending rate on new loans2)

Per cent. 1 July 2007 – 14 October 2008

Money market rate

Mortgage rate

Key policy rate

1) 3-month NIBOR.2) Interest rates on new mortgage loans of NOK 1 million within 60% of purchase price with floating interest rate. Figures for the 20 largest banks, weighted according to market share.

Sources: Norsk familieøkonomi AS and Norges Bank

Norges Bank

28

Key policy rate in the baseline scenario and estimated forward rates

Per cent. 2008 Q4 – 2010 Q4

Sources: Thomson Reuters and Norges Bank

3.0

4.0

5.0

6.0

7.0

2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4

3.0

4.0

5.0

6.0

7.0

Market after publication of MPR 2/08 (25 June)

Baseline scenario MPR 2/08

Market 13 October 2008

Norges Bank

2929

Key policy rate

Source: Norges Bank

0

1

2

3

4

5

6

7

8

9

2005 2006 2007 2008 2009 2010 2011

0

1

2

3

4

5

6

7

8

9

1/053/04

2/053/05 1/06

2/063/06

2/071/07

3/071/08

2/08

Strategy interval

MPR 2/08

norges bank 11 executive board meeting 15 october 2008

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