The prospects for the world economy are now even weaker than we anticipated at the end of 2008. International trade is contracting markedly, and it will take time before growth rebounds. Our projections for growth among our trading partners have been revised down to -3 per cent in 2009 and ¾ per cent in 2010. Moreover, the Norwegian economy seems to be contracting more sharply than projected around the monetary policy meeting in December. BIS Review 37/2009  1  A wide range of instruments is being used in Norway to counteract the effects of the financial crisis. In order to curb the fall in activity, government expenditure will be increased by over 10 per cent this year. Norges Bank’s bank lending survey shows that banks have been tightening credit standards substantially, particularly for corporate loans. To boost the credit market a separate 1 government fund will buy private bonds. The government has also provided loans and guarantees for exports and expanded lending limits for the Norwegian State Housing Bank and other special vehicles for government 2 financing. Norwegian Banks’ equity capital makes up only 6 per cent of their assets, which is low from a 3 historic perspective, but not low compared with banks in other countries. At present, our banks are financially sound, but they need to strengthen their core capital in order to be able to supply credit as normal. The authorities offer risk capital to the banks, including core Tier 1 capital without voting right through a newly established State Finance Fund.
The operations will be conducted as fixed rate tender procedures with full allotment. The rate for the first of these operations, to be announced on 23 June 2009, will be the rate on the main refinancing operations at that time. Subsequently, the fixed rate may include a premium to the rate on the main refinancing operations, depending on the circumstances at the time. The Governing Council has decided in principle that the Eurosystem will purchase eurodenominated covered bonds issued in the euro area. The detailed modalities will be announced after the Governing Council meeting of 4 June 2009. Furthermore, the Governing Council has decided that the European Investment Bank will become an eligible counterparty in the Eurosystem’s monetary policy operations with effect from 8 July 2009 and under the same conditions as any other counterparty. These decisions have been taken to promote the ongoing decline in money market term rates, to encourage banks to maintain and expand their lending to clients, to help to improve market liquidity in important segments of the private debt security market, and to ease funding conditions for banks and enterprises. Today’s decisions take into account the expectation that price developments will continue to be dampened by the substantial past fall in commodity prices and the marked weakening of economic activity in the euro area and globally. The latest economic data and survey information suggest tentative signs of a stabilisation at very low levels, after a first quarter which was significantly weaker than expected.