Norges Bank

11

Executive Board meeting12 December 2007

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 scenario in Monetary Policy Report 3/07 Per cent. 2005 Q1 – 2010 Q4

Norges Bank

4

0

0.2

0.4

0.6

0.8

1

1.2

Apr May Jun Jul Aug Sep Oct Nov Dec

0

0.2

0.4

0.6

0.8

1

1.2

Difference between money market rate and expected key policy rate1)

3-month maturity. Percentage points. 1 April – 11 December 2007

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

UK

Euro area

US

Norway2)

Sources: Bloomberg, Reuters (EcoWin) and Norges Bank

4

Sweden

Norges Bank

5

Risk premia1) on Norwegian 3-month money market rates On IMM dates. Percentage points. Normal = 0.1

Sources: Reuters (EcoWin) and Norges Bank

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

21/12/07 21/03/08 21/06/08 21/09/08 21/12/08 21/03/09

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

1) Difference between forward 3-month money market rates and forward overnight indexed swaps OIS (Overnight indexed swap)

Norges Bank

6

0

500

1000

1500

2000

2500

3000

Jan 06 May 06 Sep 06 Jan 07 May 07 Sep 07

0

100

200

300

400

500

600

700

800

Credit premia on loans secured on sub-prime mortgages1), commercial property loans2) and

conventional mortgages 3). Basis points. 1 January 2006 – 11 December 2007

Source: Lehman Brothers

Commercial property loans (right-hand scale)

Sub-prime mortgages (left-hand scale)

Conventional mortgages (right-hand scale)

1) Credit rating BBB-, issued in second half of 20062) Credit rating BBB-3) Agency mortgage (prime) with 30-year maturity

Norges Bank

7

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2004 2005 2006 2007

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Credit premium on regular corporate bonds1)

5-year CDS prices. Basis points. 1 May 2007 – 11 December 2007

Source: Reuters (EcoWin)

US

Europe

71) Bonds with a BBB-rating

Norges Bank

8Source: Bloomberg

0

10

20

30

40

50

60

May 07 Jul 07 Sep 07 Nov 07

0

10

20

30

40

50

60

DnB NOR

Nordea

European financials(Itraxx index)

Handelsbanken

SEB

Price for hedging against credit risk.5-year CDS prices. Basis points. 1 May 2007 – 10 December 2007

Norges Bank

9Sources: Bloomberg and Reuters (EcoWin)

0

30

60

90

120

150

180

210

240

270

300

330

360

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

0

30

60

90

120

150

180

210

240

270

300

330

360

DnB NOR

Landsbanki

European financials (Itraxx index)

Citigroup

Glitnir

Kaupthing

Price for hedging against credit risk 5-year CDS prices. Basis points. 1 January 2007 – 10 December 2007

Danske Bank

Norges Bank

10

80

90

100

110

120

130

140

150

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

80

90

100

110

120

130

140

150

Source: Reuters (EcoWin)

US Japan

Emerging economies

Norway

Euro area

Equities Indices, 1 January 2007 = 100. 1 January 2007 – 11 December 2007

10

Norges Bank

11

Growth forecasts Consensus Forecasts GDP. Percentage change on previous year

0

1

2

3

4

5

6

7

8

9

World NorthAmerica

WesternEurope

Japan Asiaexcl.

Japan

EasternEurope

LatinAmerica

Projections October

Projections November

0

1

2

3

4

5

6

7

8

9

World NorthAmerica

WesternEurope

Japan Asiaexcl.

Japan

EasternEurope

LatinAmerica

Projections October

Projections November

Source: Consensus Forecasts

2007 2008

Norges Bank

12

1

2

3

4

5

6

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

1

2

3

4

5

6

Sources: Reuters and Norges Bank

Key rates and forward rates31 October and 11 December 2007

Norway

US

Euro area

11 December 2007

After previous monetary policy meeting (31 October 2007)

UK

Norges Bank

13

Average prices for crude oil and natural gas 1997 Q1 – 2007 Q41)

0

100

200

300

400

500

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

0

10

20

30

40

50

60

70

80

90

100

Source: Statistics Norway and Norges Bank

Norwegian gas

Brent Blend, USD/barrel1)

Gas price UK1)

Gas priceUSD/1000Sm3

Oil priceUSD/barrel

1) Average so far in the fourth quarter

Norges Bank

14

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2000 2001 2002 2003 2004 2005 2006 2007

-9.0

-6.0

-3.0

0.0

3.0

6.0

9.0Per cent

Petroleum production in NorwayJanuary 2000 – September 2007

Million barrels/ day

Crude oil production (left-hand scale)

Annual growth in total petroleum production (right-hand scale)

Source: Norwegian Petroleum Directorate

Norges Bank

1515

Different indicators of inflation12-month change. Per cent. January 2002 – November 2007

-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

Weighted median

CPI-ATE

20 per cent trimmed mean

CPI

Source: Statistics Norway

Norges Bank

16

0

1

2

3

4

5

6

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007

0

5

10

15

20

25

30

Registered unemployed and supply of advertised vacancies

Seasonally adjustedPercentage of labour force

In thousands

Supply of vacancies1) (right-hand scale)

Registered unemployed (left-hand scale)

1) 12-month moving average. Sources: Norwegian Labour and Welfare Organisation (NAV) and Norges Bank

Norges Bank

17

0

1

2

3

4

5

6

7

8

9

1999 2000 2001 2002 2003 2004 2005 2006 2007

0

1

2

3

4

5

6

7

8

9

Wage growth Per cent

Annual wage growth, TRCIS.All groups

Disbursed wages1).Quarterly figures

Projection MPR 3/07

Wages per normal person-year. QNA

1) Disbursed wages consist of disbursed agreed wages, irregular supplements and bonuses, commissions etc. Compensation for overtime is not included. (Manufacturing, oil and gas, construction, transport and communications, retail trade, commercial services, utilities and hotel and restaurant).

Sources: Statistics Norway, Technical Reporting Committee on Income Settlements and Norges Bank

Norges Bank

18

0

2

4

6

8

Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07

0

2

4

6

8

Disposable income1)

Consumption

Disposable income1) and consumption Last four quarters. Growth on same period previous year.

Per cent. 2003 Q4 - 2007 Q3

Sources: Statistics Norway and Norges Bank1) Excluding share dividends.

Revised figures (3rd quarter)

Figures prior to revision (2nd quarter)

Norges Bank

19

Household saving and net lending as a share of disposable income

Excluding share dividends. Last 4 quarters. Per cent. 2002 Q4 – 2007 Q3

-14

-10

-6

-2

2

Dec-02 Dec-03 Dec-04 Dec-05 Dec-06

-14

-10

-6

-2

2

Net lending to income ratio excl. share dividends

Saving ratio excl. share dividends

Sources: Statistics Norway and Norges Bank

Norges Bank

20

0

1

2

3

4

Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07

0

1

2

3

4

Expected consumer price inflation in 2 yearsEmployee/employer organisations and experts1). Per cent.

2002 Q3 – 2007 Q4

Experts

Employer organisations

Source: TNS Gallup

Employee organisations

1) Economists in the financial industry and academia.

Norges Bank

21

-30

-15

0

15

30

45

1992 1994 1996 1998 2000 2002 2004 2006

-30

-15

0

15

30

45

Unadjusted

Trend

Source: TNS Gallup

TNS Gallup's household trend indicatorUnadjusted and trend. 1992 Q3 – 2007 Q4

Norges Bank

22

-10

-5

0

5

10

15

20

25

30

Jan-06 Jul-06 Jan-07 Jul-07

-10

-5

0

5

10

15

20

25

30

Hedmark

Oslo

Rogaland

22

12-month change in house prices By county and region. Per cent. January 2006 – November 2007

Agdercounties

Whole of Norway

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

Norges Bank

23

4.0

4.2

4.4

4.6

4.8

5.0

5.2

5.4

5.6

5.8

6.0

6.2

Jul-07 Aug-07 Sep-07 Oct-07 Nov-07

4.0

4.2

4.4

4.6

4.8

5.0

5.2

5.4

5.6

5.8

6.0

6.2

Sources: Norsk familieøkonomi AS and Norges Bank

Key policy rate, money market rates and banks' lending rates on new loans1)

Per cent. 2 July 2007 – 30 November 2007

Mortgage rate

3-month NIBOR Key policy rate

1) 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

24Sources: Reuters and Norges Bank

4

4.5

5

5.5

6

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

4

4.5

5

5.5

6

24

Market 11 December 2007

Market 31 October 2007

Baseline scenario MPR 3/07

I) 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.

Key policy rate in baseline scenario and estimated forward rates1)

Per cent. At 11 December 2007

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

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

January 2002 – December 2010

25

I-44 (left-hand scale)

Projections MPR 3/07

Average 3 - 11 December 2007

11 December 2007

After previous monetary policy meeting (31 October 2007)

Weighted interest rate differential (right-hand scale)

Sources: Bloomberg, Reuters (EcoWin) and Norges Bank

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

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 meeting12 December 2007