[…] a fund mechanism […] makes it easier to decouple annual spending of petroleum revenues from current revenues.”3 7/9  BIS central bankers' speeches  Returns in financial markets also vary more over time than other revenues. With the current size of the oil fund, fluctuations in the value of the fund may be considerable from one year to the next. Fiscal policy and the Norwegian economy must be shielded from these fluctuations in the years ahead. The needed decoupling that was highlighted in the Revised National Budget for 1995 has taken on a new form. Chart: Fiscal spending of petroleum revenues Combined with high oil prices and healthy returns, the fiscal rule has brought considerable fiscal leeway. This year around a fifth of government spending will be financed by transfers from the oil fund. The level of oil revenue spending has reached 8 percent of mainland GDP. There will be less leeway further ahead. Last year was the first time money was transferred out of the oil fund to finance the non-oil deficit. We can no longer assume that the oil fund will continue to grow as a share of the economy. With a high level of oil revenue spending, there is a risk of a sharp reduction in the fund’s capital. This could, for example, happen if a global recession triggers both a decline in oil revenues and low or negative returns on the fund’s capital.
Chart: Oil investment and spending of petroleum revenues Most of us might say that the economic winter has been fairly mild so far. This is partly because the economy has been provided with ample fuel. When oil prices started to fall, the economy had for several years enjoyed both strong growth in oil investment and fiscal spending of petroleum revenues. Oil investment has since declined, while government spending has continued to rise. Spending of oil revenues has increased by about as much as oil investment has fallen since 1/9  BIS central bankers' speeches  2013. Chart: Key policy rates Monetary policy has also made a substantial contribution. An already low policy rate was cut further. The key policy rate has now been kept at a record-low 0.5 percent for close to a year. In our neighbouring countries, interest rates have come down to even lower levels, but in real terms the interest rate level has been lowest in Norway. The krone exchange rate fell in tandem with the oil price and led to higher prices for imported goods, resulting in a temporary increase in inflation. Since there is confidence that inflation will remain low and stable, we have been able to disregard that increase when setting monetary policy. The social partners have shown wage restraint. The krone depreciation has thus translated into a marked decline in relative labour costs, which has helped strengthen the position of Norwegian firms exposed to international competition.