This afternoon, I would like to start by explaining the ambivalent relationship between finance and growth, and the attendant need for financial regulation. Then, I will discuss at greater length what has been done, with an initial assessment of our achievements. Lastly, I will consider our challenges for the future. I. The ambivalent relationship between finance and growth. I would like to say right away that finance is a remarkable instrument for economic progress, decisive in the birth of European and then global capitalism since the 16th century. In order to support trade initially, then investment, and innovation today, – as well as growth –, it is naturally vital to create the right conditions for financing the economy and for sound financial institutions. 2 1/7  BIS central bankers' speeches  Many academic studies2 confirm that finance makes a positive contribution to economic growth because it reduces transaction and information costs and leads to a better allocation of capital. It is estimated for example that between 1960 and 1995, some developing countries would have accelerated real per capita GDP growth by an additional 0.4 to 1 percentage point per year if their financial systems had been more developed.3 Some authors even go as far as positing that it would be preferable to let market forces prevail without worrying about the emergence of bubbles or financial imbalances which would be absorbed by themselves. This would mean that financial crises would just be the price to pay in the short term for stronger medium to long-term growth.
New forecasts have not been prepared for this monetary policy meeting, but we have assessed new information against the forecasts we presented in March. Chart 3: International inflation has slowed Inflation among trading partners is also high but has eased in many countries in recent months. Gas and power prices have come down from the very high levels seen last year. Problems at some US and Swiss banks led to large movements in financial markets in March. Global equity indexes have risen since the March Report, and bond risk premiums have fallen. US and European households and firms appear to be finding it more difficult to obtain loans. Chart 4: The krone has depreciated High inflation has prompted central banks in many countries to raise policy rates quickly and more than in Norway. The Norwegian krone has depreciated in recent months and  1/2  BIS - Central bankers' speeches  is now at its weakest level since the onset of the pandemic in spring 2020. The krone is weaker than we projected in March. Activity in the Norwegian economy is high. Household consumption has continued to increase despite high inflation and higher interest rates. The employment rate is high and employment has risen further so far this year. The labour market is tight. Economic growth has nevertheless slowed recently. Unemployment moved a little higher in April, and the number of job postings has declined. Chart 5: Wage growth has risen The tight labour market has led to a pick-up in wage growth.