So, it raises the “signal-to-noise” ratio, which reduces uncertainty faced by private agents and strengthens the pass-through from communication to market expectations. Second, transparency is a mechanism for democratic accountability, in a world of policy discretion and central bank independence. Transparency makes it easier to judge whether a central bank is committed to its announced policy, and acts as a check on possible temptations to base policy on short-run or political considerations. In short, communication demystifies and democratises monetary policy. The empirical literature finds that better information about central bank actions can lead markets to do the central bank’s work for it. Blinder et al. (2001) was an early study which found that the US bond market’s ability to forecast Fed actions improved from around 1996 onwards, a few years after the Fed started announcing policy changes and publishing minutes of its meetings. Relatively small changes in the Fed’s policy rate were amplified by complementary movements in the bond market, which helps to stabilise the 1/5  BIS central bankers' speeches  macroeconomy.
The projections are based on the assumption that interest rates in Norway and abroad will rise somewhat faster than may be implied by today’s forward rates. Since the previous Inflation Report, the upward movement in Norwegian and international long-term interest rates has become more pronounced. Exchange rate movements are difficult to project. In Inflation Report 1/06, the path for the interest rate in Norway and abroad was assessed to be consistent with an approximately unchanged krone exchange rate. The high rate of economic growth implies that price and cost inflation will edge up after a period. Inflation measured by the CPI-ATE is projected to increase from today’s level of around 1¼ per cent, up to almost 2 per cent at the end of 2007. There are prospects that inflation will increase further and be close to the target of 2.5 per cent three years ahead. With a gradual reduction in unemployment, Norges Bank expects wage growth to edge up. At the same time, it will probably be easier for enterprises to pass on cost increases to prices in pace with the rise in demand and capacity utilisation. Capacity utilisation is now projected to be somewaht higher than its normal level. Mainland GDP is still growing strongly in 2006. Capacity utilisation in the economy is expected to rise over the next two years. Even though a gradual increase in the interest rate will result in somewhat weaker growth impulses after a period, monetary policy will still be expansionary.