The first criterion states that the interest rate should be set with a view to stabilising inflation at target or bringing it back to target after a deviation has occurred. The specific time horizon for stabilising inflation at target will depend on the disturbances to which the economy is exposed and their duration. The second criterion states that the interest rate path should provide a reasonable balance between the path for inflation and the path for overall capacity utilisation in the economy, i.e. that the inflation targeting regime is flexible. Flexible inflation targeting builds a bridge between the long-term objective of monetary policy, which is to provide an anchor for expectations of low and stable inflation, and the objective of stability in the economy. The third criterion states that monetary policy should be robust and should seek to mitigate the risk of a build-up of financial imbalances. The criterion is an expression of the lack of a complete understanding of how the economy functions or the shocks to which the economy may be exposed. The consideration of robustness can therefore be interpreted as a form of insurance against adverse outcomes. Norges Bank does not have independent objectives for asset price inflation or debt growth. However, by mitigating the risk of financial imbalances, we may also achieve more stable developments in inflation, output and employment over time. In the case of conflicting objectives, the choice of interest rate path will involve a trade-off between different considerations.
Øystein Olsen: The conduct of monetary policy Introductory statement by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), at the hearing before the Standing Committee on Finance and Economic Affairs of the Storting (Norwegian parliament), Oslo, 21 May 2013. *  *  *  Please note that the text below may differ from the actual presentation. I would like to thank the Chairman of the Committee and thank you for this opportunity to report on the conduct of monetary policy in connection with the Storting’s deliberations on the Government’s Financial Markets Report. My statement here today is based on the Bank’s Annual Report, but also on the Executive Board’s assessments for the period to the most recent monetary policy meeting and new information. When I was here last year, the key policy rate had been reduced by 0.25 percentage point to 1.5 percent in March. The key policy rate has since been kept unchanged. The key policy rate is low because inflation is low and because external interest rates are at very low levels. The year 2012 was characterised by weak growth among Norway’s trading partners and turbulence in financial markets. Uncertainty about global economic developments, particularly in Europe, was high. Key rates in many countries were close to zero, and both the European Central Bank (ECB) and the Federal Reserve announced that key rates would be kept low for a long period. Economic developments in many advanced economies remained weak into 2013.