NORGES BANK TOWARDS 2016

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1 StrategY

2 Strategy for laid down by the Executive Board on 4 December 2013 NORGES BANK TOWARDS 2016 plays an important role in society and manages substantial assets on behalf of the nation. As a central bank, aims to promote stability in the economy. As an investment manager, aims to achieve the highest possible return on the Government Pension Fund Global within the framework established by the political authorities. As 2013 draws to a close, the global economy features weak growth in many countries, unusually low interest rates and widespread use of unconventional monetary policy measures. Imbalances in the financial system led to crisis and recession in both the US and Europe, and the authorities in most western countries are now changing the system for the supervision and regulation of banks and other financial institutions. Financial stability considerations have also become more important in the conduct of monetary policy.

3 These changes and the uncertainty in the global economy are also impacting the management of the Government Pension Fund Global. aims to safeguard the Fund s assets for future generations, taking advantage of the Fund s distinguishing characteristics above all its size and long horizon to deliver good returns. Over the next three years, will update and develop work on its core tasks. We aim to contribute to setting the international standard for the conduct of monetary policy, the oversight and analysis of financial stability, and for global investment management. will promote efficient financial markets and a robust and well run payment system. We will drive work to improve the efficiency of the Norwegian money market, provide settlement services in the payment system, and issue notes and coins in accordance with best international practice. will be a transparent and well run central bank. We will communicate openly, reliably and consistently, and we will make prudent and responsible use of resources commensurate with the Bank s tasks. Norges Bank will foster a culture of performance and teamwork. We will encourage employees to develop their skills and share their knowledge. We will stimulate change and adaptation, and recruit from leading institutions. At the end of this strategy period, in 2016, will celebrate its 200th anniversary. We have an obligation to the past. The way forward must build on the Bank s long experience and ability to continuously adapt to changes in operating conditions and the outside world. The nation can be confident that we will deliver on the important tasks entrusted to. Øystein Olsen Governor StrategY

4 A TRANSPARENT AND WELL RUN CENTRAL BANK is responsible for setting interest rates and keeping inflation low and stable, promoting an efficient payment system and providing liquidity to banks. is the bankers bank and lender of last resort. We must continue to be well prepared to deal with crises and offer advice that promotes stability in the financial system. s communication will feature transparency, predictability and accountability will help set the standard internationally will make prudent and responsible use of its resources publishes its analyses and the basis for its decisions and advice. The Bank s actions should be understandable and predictable for households, firms and financial markets alike. The Bank s communication will be made as widely available as possible. As part of this work, we will assess how the Executive Board s deliberations are presented in official documents. The Bank s communication will be adapted to take account of new electronic media. aims to contribute to setting the international standard for how central banks carry out their core tasks. The Bank must have products of high quality and maintain the ability to adapt and innovate. We will further develop our analyses and improve our understanding of how the economy and financial markets function. One important precondition for accomplishing this is broad contact with other central banks and internationally recognised research institutions. s use of resources will be commensurate with the tasks entrusted to it. We will work actively to realise synergies and efficiency gains in the operation of the Bank. Excluding resources for new tasks, the total workforce will not exceed current levels. Consideration will be given to which services can best be outsourced, and which tasks need to be performed in-house. IT systems will be updated and developed where cost-effective or necessary for stable operation. Internal IT expertise will be strengthened in central-bank-specific systems. 4 NOREGS BANK

5 RENEWAL AND DEVELOPMENT OF POLICY INSTRUMENTS Since 2001, the target of monetary policy has been low and stable inflation close to 2.5 per cent over time. Our analyses and the communication of response pattern have evolved during this period. Inflation targeting has gradually become more flexible. The financial crisis and the European debt crisis have tested our understanding of the workings of the economy and the stability of the financial system. Banks now need to build capital and become more resilient. New instruments and analyses will be taken into use in our work on financial stability. will embark on a three-year research project to assess how flexible inflation targeting can best be conducted. We will draw on experience from the financial crisis and improve our understanding of how the key policy rate impacts bank interest rates, debt, output, employment and inflation. As part of the project, we will also make the necessary adjustments to our analytical tools. In addition, will strengthen its work on analyses of more structural trends in the Norwegian economy. A new regulatory framework for banks and other financial institutions is being developed internationally and will also affect Norway. will analyse risks and imbalances in the financial system. We will increase our understanding of how the use of new instruments for macroprudential policies will impact the banking system and the economy. wil have a well-supported analytical base for its advice on the new countercyclical capital buffer for banks. will use its knowledge of financial markets to identify vulnerabilities in the system and unfavourable developments. When problems arise, we will be well prepared. We will regularly assess the appropriate size and composition of s liquid foreign exchange reserves. Crisis management exercises will be conducted regularly. will have at its disposal a set of instruments that can be activated in a crisis. These are to provide liquidity support without leading to credit risk for Norges Bank or increasing moral hazard in the banking system. We will update our understanding of how the economy and monetary policy function will analyse and counteract imbalances in the financial system will continue to be well prepared for financial crises StrategY

6 PROMOTING EFFICIENT MARKETS provides liquidity to banks in the form of loans against collateral, provides final settlement of interbank payments, supplies the economy with notes and coins, and supervises developments in the payment system. These tasks give a key role in Norwegian financial markets. In exercising this role, the Bank will promote efficient money and credit markets and a robust and well run payment system. will promote an efficient money market will promote a robust and efficient payment system manages the overall krone liquidity in the banking system. We will evaluate the changes made to the management system in 2011 with a view to improving further the efficiency of the Norwegian money market. We will support the development of new instruments in the krone market, such as overnight indexed swaps (OIS). Instruments such as this can supplement and enhance NIBOR as a benchmark in the Norwegian credit and money market. will consider regularly whether the Norwegian payment system adheres to recognised international principles. We will conduct and publish research as a basis for assessing the efficiency of payments. s settlement system (NBO) will comply with relevant international standards and requirements for critical infrastructure. To ensure that banknotes continue to function effectively, and to protect against counterfeits, will launch a new series of banknotes. The plan is to have all denominations in the new series in circulation by NOREGS BANK

7 SAFEGUARDING WEALTH FOR FUTURE GENERATIONS manages the Government Pension Fund Global on behalf of the Ministry of Finance. Our task is to safeguard and build financial wealth for the nation. Good, long-term management of the fund will help both current and future generations to benefit from this wealth. The goal for the management of the fund is the highest possible long-term real return, within the guidelines established by the political authorities. We will seek to use the fund s advantages, including its size and long horizon, to maximise returns on investments. Our risk management will focus on underlying revenue flows rather than short-term price fluctuations. will ensure cost-effective execution of its management mandate. The fund will be given broader exposure to growth in the global economy so that we can safeguard its international purchasing power for future generations. In the coming years, the fund will invest in more markets and step up its real estate investments. Investment in emerging markets will also increase. This will ask much of our ongoing assessment of specific country risks. The growth in real estate investments will present challenges for the organisation of their management. is open about its investment management and attaches considerable importance to responsible ownership. Our ownership activities will be based on international standards and clear principles. Environmental, social and governance issues will be integrated into the management of the fund. The fund s distinguishing characteristics will be used to obtain the highest possible return The fund will spread its risk across markets and asset classes A respected, transparent and responsible investment manager StrategY

8 REFINEMENT OF SKILLS is a skills-based institution. We depend on our employees expertise and their ability and willingness to share their knowledge with one another. We will promote skills development and knowledge sharing rooted in best practice internationally, and levels of expertise in our core areas must be high by international standards. The Bank s culture will build on our fundamental values: team spirit, integrity, innovation and excellence. Performance and team spirit Change and leadership Recruitment Individual employees have a personal responsibility for maintaining and developing their expertise and sharing their knowledge with others at the Bank. For its part, the Bank will provide opportunities for employees to develop both individually and collectively. The most important arena for learning and knowledge sharing is in our day-to-day work. In addition, the Bank will encourage employees to acquire the necessary expertise through internal mobility and rotation and through the Bank s study and placement schemes. Knowledge sharing and effective teamwork, effort and performance will be valued and rewarded. New challenges and duties require changes and adjustments to methods and ways of working. The necessary expertise must be developed and acquired on the basis of the Bank s needs. Motivating and leading change processes is a key management task. The Bank s employees for their part must be able and willing to change and develop. will recruit from among the leading candidates at leading institutions both nationally and internationally. Recruitment and skills development will have a long-term perspective. International benchmarking, contact and outlook will continue to be key elements. We will work systematically to cement our position as one of Norway s most attractive employers. NORGES BANK Bankplassen 2 P.O. Box 1179 Sentrum, NO-0107 Oslo