Norges Bank publishes a structural liquidity forecast on the Bank’s website, with updates every Monday and Thursday.
The forecast is based on the liquidity pattern from the previous year, adjusted for public holidays and any specific transactions affecting liquidity. The liquidity situation is determined by four main factors: changes in the government’s account, bank stocks of notes and coins, changes in holdings of government securities in the market and purchases of foreign exchange for the Government Pension Fund Global (GPFG).
The government has an account at Norges Bank. Incoming payments to the government’s account, e.g. tax, drain liquidity from the market. Outgoing payments have the opposite effect. The surplus on the central government budget indicates that incoming tax payments to the government in the course of a year exceed outgoing payments. Liquidity is then transferred from the banking system to the government and structural liquidity decreases. The budget surplus is transferred to the GFPG in foreign currency. Liquidity that is drained through the budget surplus is thereby supplied again when Norges Bank sells NOK and purchases foreign exchange for transfer to the GFPG. In sum over a year, these two should balance each other, so that the central government budget and Norges Bank’s foreign exchange purchases do not in total affect structural liquidity.
The liquidity forecast is updated regularly in the light of new information. Based on the forecast, Norges Bank decides whether there is a need to supply liquidity, the duration of loans provided and the extent of total lending to banks.
Drawing up forecasts for bank reserves poses challenges. It can be particularly difficult to predict the pattern of tax payments to the government. As the forecast is based on the previous year’s liquidity pattern, forecast uncertainty will increase in periods containing moving public holidays. If the tax payment schedule is changed from one year to the next, this will also have an impact on the accuracy of the forecast. In addition to the pattern, there is also uncertainty associated with the size of incoming and outgoing payments in the government’s account, as these can vary with the cyclical situation.