Field development projects that are now underway will be affected, although to a limited extent. In addition, some new projects may be postponed or cancelled. Lower demand for goods and services from the petroleum sector has spillover effects on the mainland economy, with a dampening effect on labour demand. The fact that activity in the petroleum sector is declining does not mean that the oil age is coming to an end. Nearly half of known oil and gas reserves on the Norwegian continental shelf have not yet been extracted. And large new discoveries have been made over the past few years. Nonetheless, the Norwegian economy must adapt to considerably lower demand from the oil sector. We will be more dependent on growth in other sectors to support growth in the economy. Another challenge is Norway’s high labour costs. The cost level in the business sector has increased sharply relative to our trading partners. To underpin a necessary transition towards non-oil industries, the cost level in Norway must again be brought more closely into line with that of our trading partners. A necessary adjustment of the cost level in Norway can occur by means of lower wage growth in Norway than in other countries or a depreciation of the krone exchange rate. In Norway, monetary policy is geared towards keeping inflation low and stable. The operational target of monetary policy is consumer price inflation of close to 2.5 percent over time. The inflation target provides the economy with a nominal anchor.
This has mainly been achieved by establishing the sovereign wealth fund and a fiscal rule imposing a constraint on oil revenue spending. The Norwegian parliament passed the Act relating to the fund in 1990. Under the Act, the net budget surplus, including oil revenues, is transferred to the fund, and invested in international markets. The policy guidelines were clarified in 2001 through the introduction of the fiscal rule. Under these guidelines, government spending of oil revenues – measured by the non-oil budget  BIS central bankers’ speeches  1  deficit – is limited to the expected real return on the fund – estimated at 4 percent annually. The idea is to leave the capital in the fund untouched, saving it for future generations. The fiscal rule provided for a gradual phasing in of oil revenues. Over time, we would have to expect the real krone exchange rate to appreciate as a result. However, due to the fund mechanism and the fiscal rule, actual spending is decoupled from current petroleum revenues. This has curbed the appreciation of the krone and thus reduced fluctuations in the exchange rate. Compared to other resource-based economies, the real krone exchange rate has remained relatively stable, especially during the period of substantial increases in oil prices (cf. diagram). Let me elaborate on the transactions that actually take place. All revenues from the sale of oil and gas are originally in foreign currency.