Norwegian banks have been an important importer of foreign capital. Net capital inflows to banks amounted to about NOK 140 billion in this period, with short-term capital accounting for almost half. Chart 12 Banks’ gross foreign debt Percent of lending  13  BIS Review 67/2000  Since 1995 there has been a shift towards higher foreign funding in the banking sector. Banks have financed the widening difference between customer deposits and lending from foreign sources. Chart 12 shows that a large portion of foreign borrowing has been short-term. In 1998, lending growth slowed and customer deposits increased, and growth in banks’ foreign debt came to a halt. In recent years we have thus recorded exports of long-term capital that are considerably higher than the current account surplus. The substantial net outflow of long-term capital from the private sector may partly reflect a thin Norwegian capital market. The Norwegian bond market is not very developed and the value of equities in the Norwegian market in relation to GDP is very low. Chart 13 Net fixed investment rate and productivity growth in manufacturing Percent  It is also worth noting that according to highly uncertain national accounts figures, fixed investment is now at a very low level and there is little growth in productivity in Norwegian manufacturing. There are few signs at the moment that the “new economy” has reached this segment of the Norwegian business sector.
This would enable us to surprise market participants, and in the short term this might allow interest rate changes to have a greater impact. But enterprises and financial operators would gradually learn from experience and take positions to guard their interests. The long-term results would be weaker confidence in monetary policy, higher interest rates and risk premia, lower investment and an unstable exchange rate. Economic developments Chart 4 Effective exchange rate for EUR Nominal and real. Index 1995=100  There have been substantial fluctuations between the major currencies since the introduction of the euro. In general, the euro has depreciated against other currencies. Some academic papers suggest that the euro is undervalued. For instance, calculations in a working paper published by the IMF indicate  BIS Review 67/2000  6  that the nominal equilibrium exchange rate at the time of the introduction of the euro at the beginning of 1999 was USD 1.26 per euro.3 Forecasts Norwegian krone Market makers’ estimates  Expectations in money and foreign exchange markets seem to suggest that the euro is also considered to be undervalued in relation to the Norwegian krone. Estimates from market-makers indicate that the krone is expected to weaken against the euro over the next three to twelve months. Chart 5 Other exchange rates Index. January 1999=1000  The krone has depreciated against other currencies since the beginning of the year. It has weakened considerably against, for instance, the US dollar and pound sterling, but less against the Swedish krona.