Norges Bank Bankplassen 2 P.O. Box 1179, Sentrum, N-0107 Oslo Telephone: +47 22 31 60 00 Telefax: +47 22 41 31 05 www.norges-bank.no Annual Report 2006 ISSN 0078-1185 2006 Norges Bank Annual Report 2006 2006Annual Report 2006 Norges Bank (Central Bank of Norway) Oslo, Norway 2007 Head office: Bankplassen 2 Postal address: P.O. Box 1179 Sentrum, N-0107 Oslo, Norway Telephone: +47 22 31 60 00 Telefax: +47 22 41 31 05 Registration no. 0629/7 E-mail: [email protected] Internet: http://www.norges-bank.no. Governor: Svein Gjedrem Deputy Governor: Jarle Bergo This report was set and printed at Grefslie Trykkeri, Mysen. The report was bound at Lundeby & Co. Bokbinderi as The text is set in 10 point Times and printed in offset on Galerie One Silk 115 gram paper. The cover is printed on Rives Tradition 250 gram paper. Design, setting and printing: Grefslie Trykkeri Photo: Arild Yttri The illustrations show art from Norges Bank’s collection. Cover illustration: Sverre Morken: Edvard Grieg. Graphic art. Page 5: Trine Lindheim: Nattseiler II (Night-sailor II). Woodcut, 1994. © Trine Lindheim / BONO 2007 Page 9: Håkon Bleken: Fuglen (Bird). Drawing, 1967. © Håkon Bleken / BONO 2007 Page 13: Ludvig Eikaas: Dyr i kamp (Animals fighting). Graphic art, 1956. © Ludvig Eikaas / BONO 2007 Page 15: Sigmund Reite: Dei dansar med attletne auge (Dancing with their eyes closed). Graphic art, 1978. © Sigmund Reite / BONO 2007 Page 35: Inger Sitter: Granitt (Granite). Graphic art, 1956. © Inger Sitter / BONO 2007 Page 37: Anne Katrine Dolven: Pianospill (Playing the piano). Graphic art, 1984. © Anne Katrine Dolven / BONO 2007 Page 41: Erling Enger: Blått landskapVI (Blue landscape VI). Water colour, 1965. © Erling Enger / BONO 2007 Page 56: Dang van Ty: Sint and (Angry duck). Woodcut, 1984 © Dang van Ty / BONO 2007 Page 56: Dang van Ty: Hane (Cock). Woodcut, 1984 © Dang van Ty / BONO 2007 Page 61: Espolin Johnson: Fra Røst (From Røst). Graphic art. © Espolin Johnson / BONO 2007 Page 66: Frans Widerberg: Budbringer (Messenger). Graphic art, 1974. © Frans Widerberg / BONO 2007 Page 70: Borghild Rud: Farmor (Grandmother). Drawing. © Borghild Rud Page 73: Harald Kihle: Hestehandel (Horse-trading). Graphic art. © Harald Kihle / BONO 2007 Page 77: Jan Roar Flaa: Utsikt Toscana (Tuscan view). Drypoint, 1990. © Jan Roar Flaa Page 80: Erik Werenskiold: Opus 30. Hånd i hånd (Hand in hand). 1913. Graphic art. © Erik Werenskiold / BONO 2007 Page 84: Paul Rene Gauguin: Spansk pike (Spanish girl). Graphic art, 1956. © Paul Rene Gauguin / BONO 2007 Page 85: Harald Kihle: Johan’s. Graphic art. © Harald Kihle / BONO 2007 ISSN 0078-1185 NORGES BANK ANNUAL REPORT 2006 3 Table of Contents Part I Report of the Executive Board 2006 . 6 Monetary policy . 6 Financial stability . 8 Investment management . .9 Organisation and personnel . .11 Use of resources and restructuring . 11 Gender equality . 12 Health, environment and safety . 12 Internal control and risk management . 12 Ethical rules . 13 Profit and loss account and balance sheet . 13 Distribution of profit . 14 Part II Financial statements for 2006 . 15 Profit and loss account . 17 Balance sheet . 18 Notes . 20 Auditors’ report for 2006 . 32 Resolution of the Supervisory Council concerning the financial statements for 2006 . 33 The Supervisory Council’s statement on the minutes of meetings of the Executive Board and its supervision of Norges Bank . 34 Part III Norges Bank’s activities . 35 Chapter 1 Monetary Policy . 36 Flexible inflation targeting . 36 Monetary policy in 2006 . 41 Developments in the period to 2006 . 41 Monetary policy in 2006 . 43 Monetary policy meeting on 25 January . 43 Monetary policy meeting on 16 March and Inflation Report 1/06 . 43 Monetary policy meeting on 26 April . 44 Monetary policy meeting on 31 May . 44 Monetary policy meeting on 29 June and Inflation Report 2/06 . 44 Monetary policy meeting on 16 August . 45 Monetary policy meeting on 27 September . 45 Monetary policy meeting on 1 November and Inflation Report 3/06 . 45 Monetary policy meeting on 13 December . 46 The economic situation at the end of 2006 . 46 Assessment – use of instruments . 49 Market expectations concerning the key policy rate . 49 Was interest rate setting predictable in 2006? . 50 Other cross-checks . .51 Evaluation – performance over time . 53 Evaluation of inflation and the output gap over time . 53 Inflation expectations . .55 Liquidity management in the money market . 55 Chapter 2 Financial stability . 57 Responsibility for the stability of the financial system . 57 Financial markets and financial institutions . 57 Surveillance of financial stability . 57 Financial stability in 2006 . 58 Satisfactory outlook for financial stability in the short term . 58 Bank earnings remain solid . 59 Household debt continues to rise . 59 Enterprises’ financial position is solid . 60 Global growth remains buoyant, but vulnerabilities are on the rise . 60 Financial market regulation . 60 Capital adequacy rules . 61 4 Liquidity requirements . 61 Financial markets . 61 Asset management in insurance companies and pension funds . 61 Collateralised bonds . .62 Payment systems . 62 Norges Bank’s tasks and responsibilities . 62 Norges Bank’s settlement system . 62 Risk in payment systems . 63 Authorisation and overnight supervision of interbank systems . 63 Developments in the use of various payment instruments . 64 International payment systems . ..