A more moderate rise since last summer is related in part to lower air transport prices (increased competition between airlines) and a slower rise in house rents. The rise in prices for imported consumer goods has been pushed down by the strong krone exchange rate. The shift in clothing imports from high-cost countries to Asia and Eastern Europe has also contributed. In the near term, the appreciation of the krone over the past two years will be reflected in the underlying rise in prices. Subsequent developments will partly depend on developments in the global economy, the effects on the business sector of the high cost level, the krone exchange rate and how changes in the exchange rate feed through to consumer prices in Norway. In the baseline scenario presented in the Inflation Report, where the interest rate is held constant at 5½ per cent and the krone exchange rate at the average for the past month, inflation is projected to remain below 2½ per cent over the forecast horizon. The alternative scenario, incorporating monetary policy easing in line with market expectations, points to inflation above the target at the two-year horizon. Norges Bank has reduced the sight deposit rate from 7 to 5 per cent since 11 December last year. A lower interest rate differential has been followed by a weaker krone exchange rate. The lower interest rate and weaker krone have both contributed to a more expansionary monetary policy.
New financial sector regulation (I am referring to the CRR/CRD and the forthcoming BRRD) and single banking supervision will add new aspects and new partners to Nordic-Baltic cooperation. The goal of harmonisation of cross-border regulatory and supervisory practices is to create an operating environment for banks and other financial institutions that fosters mutual trust and helps ensure that the provision of financial services is continuous and satisfies the needs of the real economy. When the SSM becomes operational, it will have important effects on the routine supervisory work in the Nordic-Baltic region. The home countries of several subsidiaries that will be included under direct supervision by the SSM/ECB will probably remain outside the SSM. This presents a new challenge for the Nordic-Baltic cooperation framework. In the light of the success of our regional cooperation it is rational that we build the new principles of supervision on the existing foundation wherever possible. I hope and believe that in this new and more complex framework we will be able to preserve an important value – the spirit of cooperation. In view of the development of the single market it is also important that the building of the banking union be completed – the SSM must be followed by the SRM. Ideally, this would create the balance between rights and responsibilities which has been the guiding principle in safeguarding cross-border financial stability for nearly a decade.