I will also offer my opinion on how other economic policy should make a consistent contribution, so that we can chart a course through these uncertain times towards prosperity and opportunity. 1. Euro area: situation and outlook A succession of adverse shocks, including that triggered by Russia's invasion of Ukraine, have rocked the global and, naturally, the European economy. Indeed, given our geographical proximity to the war zone, our close trade and financial ties to Russia and our high dependence on fossil fuel imports from that country, the euro area economy has been one of the hardest hit by the war. The war has sent the prices of energy and other commodities soaring. As these are products that the euro area does not have at its disposal and needs to import, this has led to a significant deterioration in our terms of trade of around 2 percentage points (pp) of (nominal) GDP to 2022 Q3. Moreover, this shock has unfolded amid sky-rocketing global inflation, which has reached levels not seen in several decades and is prompting sharp falls in real income. The reasons behind the rise in inflation are manifold and combine supply and demandside factors, whose weights differ depending on the geographical area in question. In  1/8  BIS - Central bankers' speeches  the case of the euro area, higher energy and food prices have added to the effect of other supply-side factors related in particular to supply-chain disruptions.
We may not yet have seen the full effects on the krone exchange rate of the interest rate reductions that have been implemented. At the same time, the krone can be influenced by fiscal policy and the outlook for wage growth. Norges Bank’s Executive Board sets the interest rate with a view to achieving the inflation target of 2½ per cent. The inflation target is also a vehicle for monetary policy’s contribution to stabilising output and employment. When setting the interest rate, the Executive Board seeks to achieve a balance. The objective of stimulating growth in the Norwegian economy and achieving the inflation target is weighed against the risk of new pressures building up in the economy over the long term. Since December 2002, we have judged that to achieve this balance it was appropriate to reduce the interest rate to a low level. At the last monetary policy meeting on 13 August, it was decided to reduce the interest rate to 3.0 per cent. With an interest rate of 3.0 per cent, the Executive Board’s assessment remained unchanged, i.e. that the probability that inflation two years ahead will be lower than 2½ per cent is greater than the probability that it will be higher. Thank you for your attention. BIS Review 38/2003  5