And a strong and stable European economy is probably of greater importance to the world at large than is any particular level for the euro’s exchange rate. So, the euro has arrived. It has already made an impact on financial markets and trade, and that impact is likely to expand over time. We disregard it at our cost. And we should focus on the longer-term implications of the euro rather than dwell too much on its short-term vicissitudes. Finally, in Hong Kong we should perhaps be watching with special interest the evolution of the euro and the way in which the associated macroeconomic challenges within Euroland are tackled, to see what lessons might be put in store for a future generation of central bankers in this region, who might at some stage decide that the time had come to launch a similar initiative. BIS Review 53/1999  4
This means that the interest rate should be set so that monetary policy mitigates the risk of a buildup of financial imbalances. Normally, the key policy rate cannot achieve several objectives simultaneously. In the case of conflicting objectives, the choice of interest rate path will involve a trade-off between different considerations. If monetary policy only took into account the low level of inflation, the key policy rate would be rapidly reduced and kept close to zero for a good while. Inflation might then pick up faster, partly as a result of a weaker krone. In the light of the trade-off against other considerations, however, the Bank does not want to accelerate the pace of inflation. The result would be a pronounced impact on output and employment and increased risk of a buildup of financial  BIS central bankers’ speeches  5  imbalances. A prolonged period of low interest rates may increase the risk that debt and asset prices will be driven up to levels that are unsustainable over time. When weight is also given to the two other criteria, the interest rate path therefore becomes higher even though the level of the key policy rate is low from a historical perspective. The Norwegian economy is well poised to face new shocks and challenges. While many of our trading partners are struggling with low growth, high unemployment and mounting government debt, the Norwegian economy still features buoyant activity, low unemployment and government budget surpluses.