Growth in the Norwegian economy remains strong and is stronger than projected earlier. Capacity utilisation is high. Wage growth is on the rise and there are prospects of higher inflation. At the same time, the krone had appreciated markedly and there are prospects that somewhat weaker growth in the world economy will contribute to curbing inflation and growth in output and employment in Norway. Reference was also made to the analyses in Monetary Policy Report 3/07, which indicate that the key policy rate should be raised further, but to a lesser extent than envisaged in June. In addition, the Executive Board pointed out that the projections are uncertain. New information may reveal aspects of economic developments indicating that the Norwegian economy is moving on a different path than projected. On the one hand, high capacity utilisation and higher cost inflation may lead to higher-than-projected inflation. On the other hand, the risk of slower growth in the world economy has increased. If global economic developments are weaker or if the krone appreciates more than we have assumed, inflation may be lower than projected at present. It was the view of the Executive Board that the key policy rate should be in the interval 4¾5¾ per cent in the period to the publication of the next Report on 13 March 2008, unless the Norwegian economy is exposed to unexpectedly severe shocks. Thank you for your attention.
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.