Nowadays, the Chancellor specifies the inflation target each year, in a letter to the Governor, but decisions about interest rates are taken by a Committee of nine independent experts who have strong incentives to keep inflation close to target. That is not just because a measurable target provides a clear focus for decisions, important as that is. The regime is intentionally highly transparent with a heavy emphasis on accountability to Parliament and the general public as well as the government of the day. Our individual votes are a matter of public record, and we regularly appear in front of the Treasury Committee to explain our decisions. Minutes of MPC meetings are published within a fortnight. And every three months, we publish an Inflation Report, with the MPC s views on the outlook for growth and inflation over the next three years. This is the subject of regular briefings to business audiences around the country as well as a high profile press conference fronted by the Governor. All this gives monetary policy watchers - in financial markets and in the country at large - plenty of information by which to judge how we are doing, as well as to form their own expectations of future inflation and growth. How successful have we been in establishing a credible policy regime? A key test is what people expect about inflation, and in particular how those expectations react to unexpected economic news. If the regime is credible, people should expect inflation to stay close to target.
Svein Gjedrem: The inflation target and the floating krone: the interplay between fiscal policy, the interest rate and competitiveness Address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), to the Executive Board of the Federation of Norwegian Manufacturing Industries, Oslo, 20 March 2002. This speech is based on information provided in Norges Bank’s Inflation Report 1/2002, earlier speeches and the Governor’s Annual Address on 14 February 2002. Accompanying charts can be found on the Norges Bank’s website (www.norges-bank.no). *  *  *  Norway’s economic policy is based on the guidelines for fiscal and monetary policy. The guidelines for fiscal policy state that the use of petroleum revenues over the central government budget shall be equivalent to the expected real return on the Government Petroleum Fund. Monetary policy is oriented towards low and stable inflation. Historically, periods of high inflation have always been followed by a downturn. Low and stable inflation fosters stability and growth in the economy. Establishing guidelines for economic policy is not new. Both fiscal and monetary policy have been based on such rules throughout the post-war period, with the exception of the last half of the 1970s and the first half of the 1980s. Monetary policy has had a clear anchor since 1986. The inflation target provides an anchor for expectations concerning future inflation and interest rates. The inflation target is set at 2½ per cent.