Svein Gjedrem: Monetary policy and the outlook for the Norwegian economy Address by Mr Svein Gjedrem, Governor of the Norges Bank, at a meeting of Sparebanken Nord-Norge, Tromsø, 25 September 2001. Please note that the text below may differ slightly from the actual presentation Summary and charts. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 19 September. *  *  *  Norway’s economic policy is based on new guidelines for fiscal and monetary policy. The new guidelines were published by the Government on 29 March 2001 in connection with the presentation of the Government’s Long-Term Programme. The inflation target for monetary policy came into force immediately. The guidelines for fiscal policy were discussed in the Storting in June and were approved by a majority. Monetary policy is oriented towards low and stable inflation. The inflation target is set at 2½ per cent. In general, the direct effects on consumer prices resulting from changes in interest rates, taxes, excise duties and extraordinary temporary disturbances shall not be taken into account. In the 1990s, monetary policy gradually moved further away from the fixed-exchange-rate regime which was practiced from 1986 to 1992. Low and stable inflation is the best contribution monetary policy can make to growth, prosperity and income distribution. In the long term, monetary policy has little effect on the real economy. Low and stable inflation can, however, provide fertile ground for stability and growth.
In a scenario when we see oil prices slump from the current relatively high levels, both business and household expectations are set to be negatively affected for a time. However, we expect no reversal in the current positive economic trend. We cannot rule out a certain slowdown in the paces of growth between late this year and early next year; yet subsequently, the economic 2 / 14  BIS central bankers' speeches  trends of today will prevail. Businesses will be gradually building up investment as they capitalise on their profits accumulated in prior years. The real sector’s ability to borrow will also improve over time. Alongside with softer monetary conditions, this will give extra impetus to growth in investment. Consumer demand will recover gradually on the back of growing revenues and improving expectations. This process is expected to be smooth and create no inflation risks. The recent strengthening in the ruble is set to bring about increased demand for imports in the first half of 2017. Moving forward, however, this growth is on course to become slower; in this way, exports are set to grow at moderate paces. In 2017–2018, economic growth will total about 1-1.5%, with acceleration to 1.5-2% envisaged as early as 2019. Still, potential economic growth will be invariably constrained by structural factors. Following this recovery period, paces of GDP growth are expected to be equal or less than 1.52%. The current account balance is expected to rise in 2017, prompted by higher oil prices.