This will, in turn, help raise the comfort level and can usefully avoid potential policy missteps and create policy synergies that eventually foster confidence of investors. This is the kind of trust that no amount of legal text, conditions precedent, or covenants can match, but is developed through the friendship and goodwill among friends within the region. Countries in the same region tend to possess better understanding and coordination, and therefore, policies and initiatives at the regional level can be more effective and timely. Second, while the Asian financial crisis was a wake up call for Asia on the need for regional liquidity facility, Asian countries need to consider making such facility sufficiently large and effective with timely disbursement in light of the current global crisis. During the Asian financial crisis, more than 75% of the IMF’s financial package for Thailand came from the funding within the region. The present global situation has also reconfirmed the vision set for the by the Chiang Mai Initiative (CMI) that Asia needs to have its own regional liquidity facility to protect itself from contagion, be it caused within the region or from outside. It is therefore timely that coordination and cooperation among countries be further strengthened to ensure that prompt remedial actions can be put in place in light of the ongoing global financial crisis.
This is the most important contribution monetary policy can make to sound economic developments in the long term. Low and stable inflation provides the economy with a nominal anchor. This contributes to predictability for those taking decisions about saving and investment today, although the result depends on how the economy develops in the future. In addition, we will seek to prevent unduly wide fluctuations in output and employment in the short and medium term. In the long term, output in an economy is determined by the supply of labour, capital and technology. Monetary policy influences the economy with long and variable lags. This means we must look ahead when setting interest rates. I would therefore like to comment briefly on our assessment for the next three years, based on the analyses in the most recent Inflation Report, published in June (Inflation Report 2/05). The Norwegian economy is in an upturn and is now expanding at a brisk pace. Inflation remains low, but has edged up since last year. The risk of a fall in the level of prices and  3/7  markedly lower inflation expectations has diminished. At the same time, there appears to be little risk that inflation will rapidly move up to a level that is too high. The interest rate reductions through 2003 and into 2004 have resulted in low real interest rates. For a period, the real interest rate has been considerably lower than normal. The low level of interest rates is supporting the high activity level in the Norwegian economy.