Norges Bank

11

Executive Board meeting23 January 2008

Norges Bank

22

The Executive Board’s strategy

The key policy rate should be in the interval 4¾ - 5¾% in

the period to the publication of the next Monetary Policy

Report on 13 March 2008, unless the Norwegian

economy is exposed to major shocks. Given the inflation

target, we will be mindful of the effects of higher interest

rates on the krone exchange rate when inflation is low.

Monetary Policy Report 3/07 – Conclusions

Norges Bank

3

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

5

2005 2006 2007 2008 2009 2010

-2

-1

0

1

2

3

4

5

-1

0

1

2

3

4

5

2005 2006 2007 2008 2009 2010

-1

0

1

2

3

4

5

30%

50%

70%

90%

Output gap

Underlying inflation (CPI-ATE)

Key policy rate

Inflation (CPI)

Sources: Statistics Norway and Norges Bank

Baseline scenarios in Monetary Policy Report 3/07 In per cent. 2005 Q1 – 2010 Q4

Norges Bank

4

-5

-4

-3

-2

-1

0

1

2

3

4

Jul 03 Jan 04 Jul 04 Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08

-5

-4

-3

-2

-1

0

1

2

3

4

Domestically produced goods and services (0.7)

Imported consumer goods (0.3)

CPI-ATE

Sources: Statistics Norway and Norges Bank

CPI-ATE1) Total and by imported and domestically produced goods and services2). Projections in MPR 3/07 (broken line). 12-month change. In per cent

1) CPI adjusted for tax changes and excluding energy products 2) Norges Bank’s calculations

Norges Bank

55

-2.5

-1.5

-0.5

0.5

1.5

2.5

3.5

4.5

5.5

2002 2003 2004 2005 2006 2007

-2.5

-1.5

-0.5

0.5

1.5

2.5

3.5

4.5

5.5

Source: Statistics Norway

Weighted median

CPI-ATE

20 per cent trimmed mean

CPI

Inflation indicators 12-month change. In per cent. January 2002 – December 2007

Norges Bank

6

CPI-ATE Highest and lowest monthly change in the period 1999 – 2006 and

monthly change in 20061) and 2007. In per cent

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Sources: Statistics Norway and Norges Bank

Highest monthly change

Lowest monthly change

2006

Average 2001-2006

2007

1) January 2006 has been adjusted for lower maximum day-care rates

Norges Bank

7

Domestic supplier sectors in the CPI-ATE 12-month change. In per cent. January 2004 – December 2007

-4

-2

0

2

4

6

2004 2005 2006 2007

-4

-2

0

2

4

6Services where wages

are the dominant factor (7 %)

Domestically produced consumer goods (24 %)

Sources: Statistics Norway and Norges Bank

Other services (18 %)

Rent (20 %)

Norges Bank

88

2200

2250

2300

2350

2400

2450

2500

1999 2001 2003 2005 2007 1999 2001 2003 2005 2007

0

2

4

6

Labour market

EmploymentIn 1000s

UnemploymentIn per cent. Seasonally adjusted

LFS

Registered unemployedLFS1)

Sources: Statistics Norway and Norwegian Labour and Welfare Organisation (NAV)

1) The changes to the LFS have resulted in a break in the time series between 2005 and 2006.

Norges Bank

9

-10

10

30

50

1970 1980 1990 2000

0

5

10

15

20

25

30

35

40

2004 2005 2006 2007

Romania

Latvia

Estonia

Lithuania

Poland

Registered employed from new EU countries In thousands. Jan - Dec 2007

Population growth and net inward migration in Norway

In thousands

Population growth

Net inward migration

Sources: Statistics Norway and the Central Office – Foreign Tax Affairs

Norges Bank

10

-45

5

55

105

1987 1992 1997 2002 2007

-45

5

55

105

0

20

40

60

80

100

120

140

2004 2005 2006 2007

Czech Republic

Romania

Estonia

Hungary

Slovakia

Latvia

Lithuania

Poland

Issued social security numbers to persons from

new EU countries In thousands. Jan - Oct 2007

Population growth and net inward migration in Ireland

In thousands

Sources: Central Statistics Office Ireland and Department of Social and Familiy Affairs

Population growth

Net inward migration

Norges Bank

11

Index of commodity consumption Volume. Seasonally adjusted. Jan 2005 – Nov 2007

100

110

120

130

140

150

160

170

Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07

100

110

120

130

140

150

160

170

11Source: Statistics Norway

Norges Bank

12

Regional house prices 12-month change. In per cent. Jan 2006 – Dec 2007

-10

-5

0

5

10

15

20

25

30

Jan 06 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07 Oct 07

-10

-5

0

5

10

15

20

25

30

Hedmark

Agder

Norway

Akershus

RogalandHordaland

Trøndelag

Nord-Norge

Oslo

Vestfold

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

Norges Bank

13

4.00

4.25

4.50

4.75

5.00

5.25

5.50

5.75

6.00

6.25

6.50

Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07 Jan 08

4.00

4.25

4.50

4.75

5.00

5.25

5.50

5.75

6.00

6.25

6.50

Key policy rate, money market rate1) and banks’ lending rate on new loans2) In per cent. 2 Jul 2007 – 21 Jan 2008

Mortgage rate

Money market rate

Key rate

Sources: Norsk familieøkonomi AS and Norges Bank

1) 3-month NIBOR2) Interest rates on new mortgage loans for NOK 1 million within 60% of purchase

price with floating interest rate. Figures for the 20 largest banks, weighted according to market share.

Norges Bank

14

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Aug 07 Sep 07 Oct 07 Nov 07 Dec 07 Jan 08

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Sources: Consensus Economics, IMF and OECD

LehmanBrothers

Consensus Forecast

Projections for GDP growth in the US in 2008 In per cent. Aug 2007 – Jan 2008

Goldman Sachs

JP Morgan

Morgan Stanley

Merrill Lynch

IMF

1) OECD projections from EO 81, May 2007 and EO 82, December 2007, indicated by grey dots.

OECD1)

Norges Bank

15

0.50

1.00

1.50

2.00

2.50

1959 1964 1969 1974 1979 1984 1989 1994 1999 2004

-10

-5

0

5

10

15

20

25

30

The US housing marketJan 1959 – Dec 2007

Sources: Reuters (EcoWin) and Norges Bank

Building permits1)

(left-hand axis)Housing starts1)

(left-hand axis)

Case-Shiller home price index2)

(right-hand axis)

1) 3-month moving average. In millions.2) Composite 10 Index, 12-month change. Per cent.

Millions Per cent

Norges Bank

16

Unemployment and employment growth in the US Seasonally adjusted unemployment.

12-month employment growth. In per cent. Jan 1995 – Dec 2007

-2

-1

0

1

2

3

4

5

6

7

1995 1997 1999 2001 2003 2005 2007

-2

-1

0

1

2

3

4

5

6

7

Source: Reuters (EcoWin)

Unemployment

Employment growth

Norges Bank

17

70

80

90

100

110

120

130

140

150

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

70

80

90

100

110

120

130

140

150

US (S&P 500)

Japan (Nikkei)

Emerging economies (MSCI)

Norway (OSEBX)

Europe (STOXX)

EquitiesIndices 1 Jan 2007 = 100. 1 Jan 2007 – 22 Jan 2008

17Source: Reuters (EcoWin)

Norges Bank

18

Oil price (Brent Blend). Spot and futures pricesIn USD per barrel. 1 Jan 2003 – 1 Dec 2009

40

50

60

70

80

90

100

2006 2007 2008 2009

40

50

60

70

80

90

100

21 Jan 2008

18

MPR 3/07

Source: Reuters (EcoWin) and Norges Bank

Norges Bank

19

Commodity prices, metals In SDRs. Indices. 3 Jan 2005 = 100. 3 Jan 2005 – 22 Jan 2008

50

100

150

200

250

300

350

400

2005 2006 2007 2008

50

100

150

200

250

300

350

400

Sources: Reuters (EcoWin), The Economist and Norges Bank

Aluminium

Copper

Nickel

Zinc

The Economist commodity-price index, metals

MPR 3/07

Norges Bank

20

Commodity prices, food In SDRs. Indices. 1 Jan 2005 = 100. 3 Jan 2005 – 22 Jan 2008

50

100

150

200

250

300

350

2005 2006 2007 2008

50

100

150

200

250

300

350MPR 3/07

Sources: Reuters (EcoWin), The Economist and Norges Bank

Wheat

Maize

Coffee

Soyabeans

The Economist commodity-price index, food

Norges Bank

21

1

2

3

4

5

6

Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10

1

2

3

4

5

6

Key rates and forward rates In per cent. 12 Dec 2007 and 22 Jan 2008

Norway

US

Euro area

22 Jan 2008

After previous monetary policy meeting (12 Dec 2007)

UK

Sources: Reuters and Norges Bank

Norges Bank

22

0.0

0.2

0.4

0.6

0.8

1.0

1.2

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

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Difference between three-month money market rates and expected key rates1)

Jul 2007 – Nov 2008. In percentage points. At 22 Jan 2008

US

Euro areaUK

Norway2)

Sweden

1) The expected key rate is measured by the Overnight Indexed Swap (OIS). 2) Norges Bank’s projections.

Sources: Bloomberg, Reuters (EcoWin), Morgan Stanley and Norges Bank

Norges Bank

23

0

1

2

3

4

5

6

Apr02

Oct02

Apr03

Oct03

Apr04

Oct04

Apr05

Oct05

Apr06

Oct06

Apr07

Oct07

0

1

2

3

4

5

6

Credit premiums on corporate bonds1)

Five-year maturity. In percentage points. 1 Jan 2004 – 22 Jan 2008

Source: Reuters (EcoWin)

US

Europe

1) Bonds with a BBB rating.

Norges Bank

24

4

4.5

5

5.5

6

08 Q1 08 Q3 09 Q1 09 Q3 10 Q1 10 Q3

4

4.5

5

5.5

6

Key policy rate in the baseline scenario and estimated forward rates1)

In per cent. At 22 Jan 2008

24Sources: Reuters and Norges Bank

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 22 Jan 2008

Market 12 Dec 2007

Baseline scenario MPR 3/07

Norges Bank

25

85

88

91

94

97

100

103

2002 2003 2004 2005 2006 2007 2008 2009 2010

-1

0

1

2

3

4

5

I-44 (left-hand scale)

Weighted interest rate differential (right-hand scale)

12 Dec 2007

22 Jan 2008

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

Jan 2002 – Dec 2010

MPR 3/07

22 Jan 2008

Sources: Reuters and Norges Bank

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

Index Per cent

Norges Bank

2626

The Executive Board’s strategy

The key policy rate should be in the interval 4¾ - 5¾% in

the period to the publication of the next Monetary Policy

Report on 13 March 2008, unless the Norwegian

economy is exposed to major shocks. Given the inflation

target, we will be mindful of the effects of higher interest

rates on the krone exchange rate when inflation is low.

Monetary Policy Report 3/07 – Conclusions

Norges Bank

2727

Executive Board meeting23 January 2008