When inflation expectations are firmly anchored, monetary policy serves as the first line of defence when the economy turns down. Over time, monetary policy can only influence inflation. Monetary policy cannot take primary responsibility for delivering the necessary structural changes in the Norwegian economy. But monetary policy can help facilitate the necessary restructuring process via the exchange rate channel. As long as there is confidence that inflation will remain low and stable over time, a pronounced depreciation of the krone can go hand in hand with a low key policy rate. The krone has depreciated markedly since last September and is now about 10 percent weaker than the average for the first half of 2014. Developments in the krone exchange rate must be seen in the context of lower oil prices and weaker growth prospects for the Norwegian economy. The depreciation of the krone underpins inflation and softens the impact of lower oil prices on the Norwegian economy. As seen in the diagram a weaker krone boosts competitiveness for Norwegian firms facing competition from abroad. At the same time, wage growth has moderated to some extent. There are prospects that real wage growth this year will be at its lowest for nearly 20 years. With improved competitiveness, export firms are in a better position to maintain market shares. As growth picks up abroad, demand for Norwegian goods and services may also increase.
As a result of keen competition for loan customers, excessive optimism and problems in distinguishing between sound and unsound projects, risk may be underestimated during upturns. The labour market has few available resources. Registered unemployment has remained steady at about 2½ per cent since the beginning of 1998. Long-term unemployment is low, and spells of unemployment are generally brief. Unemployment has edged up in the last few months, primarily in Eastern Norway, while employment growth has been limited. In the aftermath of the terrorist attack on 11 September last year, the aviation and travel industries reported job cuts. Cutbacks have also been announced in the process industry. The guidelines for fiscal policy will stimulate activity because petroleum revenues will now be phased into the economy. According to the Government’s estimate, the guidelines imply an average increase in the use of petroleum revenues in the central government budget of about 0.4 per cent of mainland GDP each year from 2002 to 2010. The government budget that was approved for 2002 implies that the use of petroleum revenues will increase by 0.6 per cent of mainland GDP from 2001 to 2002. The guidelines for fiscal policy imply a substantial stimulus each year. The expansionary impetus varies considerably, and is greatest in the first few years. However, an unpredictable and more expansionary fiscal policy than that implied by the guidelines would have resulted in greater uncertainty. The guidelines provide a stable framework that contributes to reducing some of the uncertainty.