Norges Bank (Central Bank of Norway)

1

Executive Board meeting26 April 2006

Norges Bank (Central Bank of Norway)

2

Monetary Policy Strategy - Inflation Report 1/06

• The Executive Board's assessment is that the sight deposit rate should be in the interval 2¼ - 3¼ per cent in the period to the publication of the next Inflation Report on 29 June 2005, conditional on economic developments that are broadly in line with the projections.

• The interest rate may gradually – in small, not too frequent steps – be brought back towards a more normal level. The objective of bringing inflation back to target and anchoring inflation expectations nevertheless implies that monetary policy remains expansionary.

Norges Bank (Central Bank of Norway)

3

Growth projections for 2006 and 2007Projections for GDP growth published by the IMF in September 2005 and

April 2006. Per cent

0

2

4

6

8

10

Global US Euro area China Japan

2006 (September 2005)2006 (April 2006)2007 (September 2005)2007 (April 2006)

Source: IMF World Economic Outlook April 2006

Norges Bank (Central Bank of Norway)

4

Developments on stock markets internationally 2 January 2002 = 100. 2 January 2002 – 24 April 2006

25

75

125

175

225

2002 2003 2004 2005 200625

75

125

175

225Wilshire 5000, USFTSE, UKDAX, GermanyTopic, JapanOslo Stock Exchange, all-shareOMXS, Sweden

Source: EcoWin

Norges Bank (Central Bank of Norway)

5

Oil price Brent Blend and futures prices USD per barrel. 3 January 2002 – 24 April 2006

10

20

30

40

50

60

70

80

2002 2003 2004 2005 2006 2007 200810

20

30

40

50

60

70

80

24 April 2006

Sources: Norges Bank and EcoWin

10 March IR 1/06

Norges Bank (Central Bank of Norway)

6

20

30

40

50

60

70

80

2004 2005 200620

30

40

50

60

70

80

Oil futures pricesUSD per barrel light crude. 3 January 2004 – 24 April 2006

Delivery in 6 years

Delivery in 1 month

Sources: EcoWin/ NYMEX

Norges Bank (Central Bank of Norway)

7

Metal pricesIndex. Week 1, 2001 = 100

50

100

150

200

250

300

350

400

Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04 Jan 05 Jul 05 Jan 0650

100

150

200

250

300

350

400

Copper

Steel

Nickel

Aluminium

Zinc

USD USD

Source: EcoWin

Norges Bank (Central Bank of Norway)

8

Core inflation1)

12-month change. January 2002 – March 2006

-2

-1

0

1

2

3

4

2002 2003 2004 2005 2006-2

-1

0

1

2

3

4

US

Japan

Euro area

UK

Source: EcoWin\Eurostat

1) US: CPI excl. food and energy, Japan: CPI excl. fresh food Euro area, UK and Sweden: CPI excl. energy, food, alcohol and tobacco

Sweden

Norges Bank (Central Bank of Norway)

9

Actual and expected key rates1)

0

1

2

3

4

5

6

Aug 03 Aug 04 Aug 05 Aug 06 Aug 07 Aug 08 Aug 090

1

2

3

4

5

6

Sources: Reuters and Norges Bank

US

Euro area24 April 2006

15 March 2006

Sweden

UK

1) Not adjusted for credit risk

Norges Bank (Central Bank of Norway)

10

Yields on 10-year government bonds 2 January 2004 – 25 April 2006

0

2

4

6

8

2004 2005 20060

2

4

6

8

Germany

US

Japan

Sources: EcoWin and Norges Bank

Norway

Norges Bank (Central Bank of Norway)

11

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

January 2002 – December 2009

-1

0

1

2

3

4

5

2002 2003 2004 2005 2006 2007 2008 2009

85

88

91

94

97

100

103

Sources: Bloomberg and Norges Bank

I-44, (right-hand scale)

Weighted 3-month interest

rate differential (left-hand scale)

15 March 2006

24 April 2006

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

Average 3 - 25 April

Norges Bank (Central Bank of Norway)

12

Inflation12-month change. Per cent. January 2002 - March 2006

-2

0

2

4

6

2002 2003 2004 2005 2006-2

0

2

4

6

Sources: Statistics Norway and Norges Bank

Weighted median

CPI-ATE1)CPI

1)A further adjustment is made for the estimated effect of reduced maximum day-care rates from January 2006.

Norges Bank (Central Bank of Norway)

13

-5

-4

-3

-2

-1

0

1

2

3

Jan 04 May 04 Sep 04 Jan 05 May 05 Sep 05 Jan 06 May 06-5

-4

-3

-2

-1

0

1

2

3

Sources: Statistics Norway and Norges Bank

Goods and services produced in Norway

Imported consumer goods

CPI-ATE

CPI-ATE 1)

Total and by supplier sector2). Actual inflation and projections from IR 1/06 12-month change. Per cent. January 2004 - May 2006

1)A further adjustment is made for the estimated effect of reduced maximum day-care rates from January 2006. 2) Norges Bank's calculations

Norges Bank (Central Bank of Norway)

14

Change in prices for food and non-alcoholic beverages Excluding taxes. 12-month change. Per cent.

January 2004 – March 2006

-2

0

2

4

6

Jan 04 Jul 04 Jan 05 Jul 05 Jan 06-2

0

2

4

6

Source: Statistics Norway

Norges Bank (Central Bank of Norway)

15

Mainland GDP, excluding energyPercentage growth in volume on previous quarter. Seasonally adjusted

Basis value. 2000 Q1 - 2005 Q4

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2000 2001 2002 2003 2004 2005-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Sources: Statistics Norway and Norges Bank

Norges Bank (Central Bank of Norway)

16

Number of unemployed (LFS), registered unemployed and persons on labour market programmes

In thousands. Seasonally adjusted. January 1996 – March 2006

0

25

50

75

100

125

150

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 20060

25

50

75

100

125

150

LFS unemploymentRegistered unemployed and on labour market programmes

Registered unemployed

Sources: Statistics Norway and the Directorate of Labour

Norges Bank (Central Bank of Norway)

17

Expected earnings in listed companies Index. 01.01.2006 = 100

50

60

70

80

90

100

110

Jan 04 Jul 04 Jan 05 Jul 05 Jan 06

Sources: Reuters and EcoWin

2006 2007

Jan 05 Jul 05 Jan 0650

60

70

80

90

100

110

Norway

Japan

Europe

US

Norway

Japan

Europe

US

Norges Bank (Central Bank of Norway)

18

House prices (12-month change) and housing starts (number of 1000s in last 12-months). January 2001 – March 2006

Sources: Statistics Norway, Norwegian Association of Real Estate Agents (NEF), Association of Real Estate Agency Firms (EFF), ECON and Finn.no

-10

-5

0

5

10

15

20

25

30

35

2001 2002 2003 2004 2005 2006-10

-5

0

5

10

15

20

25

30

35

House prices

Housing starts

Norges Bank (Central Bank of Norway)

19

Credit growthTotal debt mainland Norway (C3). Domestic credit to households (C2)

12-month growth. Per cent

-5

0

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005 2006-5

0

5

10

15

20

25

30

Source: Norges Bank

Households

Total debt of mainland enterprises

Total debt

Norges Bank (Central Bank of Norway)

20

0

1

2

3

4

5

6

2006 2007 2008 20090

1

2

3

4

5

6

Sight deposit rate in baseline scenario and market expectations regarding the sight deposit rate1)

Per cent. 2006 Q2 – 2009 Q4

1) Derived from estimated forward rates. The sight deposit rate has been reduced by a credit risk premium and technical difference of 0.20 percentage point. The grey shaded interval shows the highest and lowest interest rates in the market's sight deposit rate scenario in the period 6 – 24 April. 06

Source: Norges Bank

Baseline scenario

Market expectations concerning the sight deposit rate

Market 24 April 2006

Norges Bank (Central Bank of Norway)

21

Sight deposit rate in baseline scenario from Inflation Report 1/06 with fan chartPer cent. Quarterly figures. 2004 Q1– 2009 Q4

0

1

2

3

4

5

6

7

8

2004 2005 2006 2007 2008 20090

1

2

3

4

5

6

7

830% 50% 70% 90%

Source: Norges Bank