At least since the end of the 1990s, it seems that enterprises, households and employees have adapted to expectations of strong income growth. This may contribute both to the appreciation of the krone and to widening the cyclical divergence between Norway and other countries. If the increase in the use of petroleum revenues has already been priced into today's exchange rate, both the longterm trend in the real exchange rate and interest rate expectations suggest that the krone exchange rate will return to a more natural long-term range. In the short term, other factors may also influence the krone. Global equity markets have seen a sharp fall in prices over the past year. When there is a large degree of uncertainty in stock markets, many investors make portfolio shifts. Money and bond markets become good alternatives. The NOK market, where interest rates are relatively high, might seem attractive. These portfolio shifts result in an appreciation of the krone. This trend may be reversed by a turnaround in the stockmarket. Another factor that we have pointed to earlier is that the Norwegian krone may also be perceived as an attractive investment alternative - or a safe-haven currency - in a situation with tensions in the Persian Gulf, high oil prices and a global downturn. Potential gains may, however, be offset by the risk associated with investing in less liquid markets. This may limit capital inflows to the NOK market.
We would then have had to reduce the interest rate sharply this summer. This would have amplified the pressures in the Norwegian economy, which are so clearly reflected in wage developments and household credit demand. It is more than likely that this would have required substantial increases in the interest rate in a year to eighteen months. Strict inflation targeting of this type would thus have resulted in more pronounced fluctuations in the interest rate and in aggregate demand and production. Information obtained via the regional network established last autumn was used when preparing the October Inflation Report. We will have six rounds of talks each year with business and community representatives concerning financial developments in their enterprises and industries. There will be a total of about 200 visits in each round. We have divided the country into 7 regions and established links with regional research institutions in six of them. These institutions will hold meetings with the representatives on behalf of Norges Bank. The private service sector is by far the largest in the Central Norway region, accounting for over 40 percent of total employment in the region. The private service and retail sales sectors together account for over half of the number employed, while a good tenth are employed in manufacturing. The share of manufacturing industry that is exposed to international competition in Trøndelag is relatively limited. Companies in the Central Norway region report small changes in prices and costs, except for export companies.