A strong krone may also lead to lower activity in exposed industries and thereby lower capacity utilisation in the Norwegian economy. This suggests that the interest rate should not be raised too rapidly. Monetary policy cannot fine-tune developments in the economy, but it can mitigate the most severe effects when the economy is exposed to shocks. Overall, the outlook and the balance of risks suggest that the key rate should be gradually increased ahead, although somewhat later than we envisaged in October 2009. On 24 March, the Executive Board decided that the key policy rate should be in the interval 1½–2½ per cent in the period to the publication of the next Report on 23 June 2010 unless the Norwegian economy is exposed to new major shocks. The interest rate was kept unchanged at this meeting. This is based on the assessment that inflation and capacity utilisation may for a period be slightly lower than previously projected and that the interest rate should be increased somewhat later than expected in autumn 2009.
When quizzed for an explanation by a Parliamentary Committee in 1930, Montagu Norman replied: “I don’t have reasons, I have instincts”. But the public’s attitudes towards trust have altered and so too has the trust-building process. Faith in public institutions is no longer blind. Trust is no longer endowed anonymously. Instead it is built through direct connections, often personalised and localised. Trust is no longer centralised in institutions. Instead it is built on a distributed basis, peer-by-peer, across the network. In short, the Age of Innocence is over. As the public’s trust has shape-shifted, central banks and other public institutions have faced new challenges to their trust. Indeed, this helps explain the first revolution in central bank transparency practices. But the crisis has added cyclical push to this structural fall in trust. Central banks are no longer surfing a wave. They face instead a retreating tide. For them, too, the Age of Innocence may be over. While some loss of trust in central banks might have been expected, it is disappointing that the pre-crisis revolution in transparency practices did not provide a greater degree of insulation against it. Why was central banks’ stock of reputational capital, built steadily through various transparency initiatives, inadequate to protect them from the crisis storm? I think there were two factors at play. First, central banks have tools, such as interest rates and banking regulations, which support the whole of the economy and financial system.