Although in the recent period domestic savings has been picking up, still in most of the economies in the region it remains below the adequate levels needed to support stronger investments and increase the long-term potential of the economies. This is particularly relevant given the changing business models of the banks that imply a lower reliance on external sources of finance that may pose constraints for stronger credit support. Higher financial knowledge may also contribute to higher savings in capital market instruments and thus provide more balanced structure of corporate sector financing. Currently, the capital market depth in the region is hovering around 50% of GDP, being far below the EU average of around 200% of GDP. One of the Vienna Initiative reports highlights the importance of financial literacy for capital markets not just from the savings point of view (demand side), but also from the supply side. According to their estimates, financial literacy level is one of the three key factors that explain the lower use of alternative sources of financing in the region in comparison with the EU average. This once again proves that the need for financial education regionwide is indeed widespread, which means necessity of a larger scope of our activities, including the corporate sector, especially the small and medium-sized enterprises. Furthermore, the financial literacy supports the ongoing process of raising financial inclusion, which is deemed to be an important dimension for having stronger, sustainable and more inclusive growth where the benefits are shared by the wider community.
Svein Gjedrem: Interest rate developments Speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the annual conference hosted by the Norwegian Federation of State Employees’ Unions, Oslo, 28 November 2007. The text below may differ slightly from the actual presentation. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 31 October and in Monetary Policy Report 3/07. *  *  *  Introduction Good morning. First of all, I would like to thank you for inviting me to this conference. As the title suggests, my speech today will focus on the interest rate and monetary policy. What is monetary policy’s role? Over the past 100 years, there have been four periods of very high inflation in Norway: during the two World Wars, during the Korean War and in a 15-year period from the first half of the 1970s to the second half of the 1980s. The last of these three periods was different from the preceding periods. In the 1970s and 1980s, inflation accelerated gradually. Inflation did not reach the same level as it did during the two world wars, but it took longer to fall. Substantial economic losses and financial instability followed in the wake of high inflation. Inflation was very costly. History shows that there is no long-term trade-off between lower unemployment or stronger economic growth and higher inflation.