Report on monetary policy in 2003 - the first eight months1)

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Letter from the Ministry of Finance to Norges Bank of 13 June 2003

Norges Bank
P.O. Box 1179 Sentrum
0107 OSLO

Credit Report 2002 – expanded discussion of monetary policy

1.

We refer to our letter of 6 February 2003, where Norges Bank was requested, as in previous years, to make a contribution to the discussion of Norges Bank’s activities in the Credit Report 2002. Norges Bank submitted a draft in its letter of 5 June 2003.

The Credit Report 2002 aims at further developing and expanding the discussion of monetary policy compared with earlier years. Reference is made to Proposition no. 81 (2002-2003) to the Odelsting which states (p. 24):

“It is the Ministry’s opinion that the mandate for monetary policy set out in the Regulation of 29 March 2001 provides a sound basis for assessing Norges Bank’s use of policy instruments. The Ministry provides an account of monetary policy in relation to the Bank’s mandate in the annual Credit Reports, which are published in the autumn and provide a more detailed account of Norges Bank’s activities in the previous year. The guidelines issued on 29 March 2001 mean that monetary policy has been given a clear role in stabilising economic developments.

The further development of the Ministry’s assessment of Norges Bank’s conduct of monetary policy in the Credit Reports is a natural consequence of the Regulation of 29 March 2001.”

In accordance with this, the letter of 21 May 2003 from the Ministry of Finance to the Standing Committee on Finance and Economic Affairs states that the intention is to further develop and expand the discussion of monetary policy in the Credit Reports. Recommendation no. 101 (2002-2003) to the Odelsting states (p. 13):

“The Committee is positive to a more extensive discussion of monetary policy in the Credit Report and considers it natural that the Storting in its deliberations concerning this Report has an open hearing at which the Central Bank Governor may be present.”

2.

Report no. 29 (2000-2001) to the Storting states the following concerning accounts from Norges Bank on the conduct of monetary policy (point 3.2):

“Section 2 of the regulation states: ‘Norges Bank shall regularly publish the assessments that form the basis for the implementation of monetary policy.’ The Bank now publishes a report every four months. The Ministry of Finance considers this to be adequate. The Ministry expects Norges Bank to provide an explanation for any deviations from the target established. In its submission of 27 March, the Bank wrote:

‘If there are significant deviations between actual price inflation and the target, the Bank will provide a thorough explanation in its annual report. Particular emphasis will be placed on any deviations outside the interval +/- 1 percentage point.’

The Ministry has taken note of this. Other circumstances may also require such an assessment on occasions other than the annual report.”

3.

In connection with the Ministry’s work on the Credit Report 2002, Norges Bank is requested to provide a more detailed account of the conduct of monetary policy for 2002 (compared with the account in Norges Bank’s letter of 5 June 2003) and also for the first eight months of 2003, including the relationship between actual price inflation and the inflation target, cf. Regulation of 29 March 2001, Section 1, first and third paragraph and the above-mentioned account in Report no. 29 (2000-2001) to the Storting. It is evident from the above that the assessment shall also provide a more detailed discussion of monetary policy in relation to inflation and exchange rate developments and the objective of stability in output and employment. The account may also be included in the work on the National Budget 2004. A response is requested by 12 September 2003.

Yours sincerely,

Jan Bjørland
Director General

Tore Mydske
Deputy Director General