At the same time, over these ten years, we have gained insight into the functioning of the Norwegian economy under an inflation targeting regime. Inflation targeting is flexible, i.e. when setting the key policy rate, weight is also given to stabilising developments in output and employment. For monetary policy to contribute to stabilising developments in output and employment, there must be confidence that the inflation target will be reached. Inflation will not be at target at all times, but if there is confidence in monetary policy, expected inflation will be close to the inflation target over time, which in itself contributes to stabilising inflation. Norges Bank’s communication of monetary policy aims to stabilise inflation expectations by giving the reasons for and explaining interest rate setting. By publishing its interest rate forecasts and monetary policy strategy, Norges Bank has made it easier for others to understand and evaluate monetary policy. It is my objective to continue and enhance the Bank’s analysis and communication. Since March of this year our monetary policy reports have included a summary of the Executive Board’s discussion of monetary policy prior to the reports. Chart: Surplus liquidity in the banking system To be effective, the key policy rate must have an impact on market rates. Norges Bank supplies liquidity to banks to bring short-term money market rates down closer to the key policy rate. Surplus liquidity in the banking system is kept as sight deposits at Norges Bank. The redistribution of interbank liquidity does not function adequately.
The main changes in the State and Social Security Budget for 2016 are, on the revenue side, the application of the second phase of the tax reform designed in 2014 and, on the expenditure side, still in the context of observing the spending ceiling, certain expansionary measures such as the approval of a wage increase of 1% for public employees, payment of the second part of the salary payment eliminated in 2012, and the general increase in the average staff replacement rate to 50%. The 2016 Budget Plan presents an estimate of the impact of these measures on regional and local governments, which are the levels of government that manage the most labour-intensive public services. Noteworthy in the area of Social Security is the revaluation of pensions by 0.25%, in accordance with the application of the new revaluation index. In light of the macroeconomic developments envisaged and the above-mentioned measures, the 2016 Budget Plan anticipates growth of around 4.5% in overall general government revenue, which is slightly higher than projected nominal GDP. This would take the public revenue/GDP ratio to 38% in 2016, compared with 37.8% estimated for 2015. On the expenditure side, the State spending ceiling, the improvement in the economic situation and the application of the above-mentioned measures to overall general government would – according to the estimations of the 2016 Budget Plan – give rise to a decrease of 1.4 pp in the public expenditure/GDP ratio.