Norwegian interest rates are now somewhat higher than expected short-term interest rates in the long term. This reflects a relatively tight monetary stance and tight economic conditions. On the other hand, interest rates in the US and Germany are exceptionally low as a result of the downturn. Short-term rates have not been that low in the US for 40 years. The wide difference between the economic  2  BIS Review 65/2002  situation and short-term interest rates in Norway and abroad is one of the driving forces behind the appreciation of the krone. Forward rates ahead indicate that the market expects the interest rates differentials to diminish as the cyclical divergence narrows. The relationship between interest rates and exchange rates was not as strong during the period when equity prices rose sharply towards the end of the 1990s and to the first quarter of 2000. This was a period when the quest for equity gains was also important for exchange rate developments. Financial markets have since shifted their focus. Even if the krone is strong, expectations concerning the krone are not particularly strong. If kroner are bought forward for delivery a few years ahead, and the exchange rate is agreed today, it will be at an exchange rate that is on a par with the average exchange rate for the 1990s. The cyclical divergence that is reflected in the krone exchange rate is not entirely disassociated from our position as an oil economy.
In the central government budget for 2003, the allocations for the purchase of goods and services and for transfers show underlying growth of 4.6 per cent and estimated real growth of 0.5 per cent. The effect of the draft budget on demand is estimated to be mildly positive. The central government budget includes a proposal to increase the use of petroleum revenues by NOK 2 billion in real terms in 2003. The structural deficit in 2002 appears to be higher than was assumed this spring. The projections for the use of petroleum revenues up to 2010 have been revised downwards considerably since the Long-Term Programme, the National Budget for 2002 and the Revised National Budget for 2002 were presented. The krone has appreciated considerably since summer 2000. There may be several reasons for this. Relationships in the foreign exchange market are unstable. There are still several fundamental forces that influence the krone. One is purchasing power parity, another the phasing in of petroleum revenues and a third is cyclical developments in Norway and other countries. Moreover, the krone can be influenced by a shift in wage formation, and the krone can also be affected by external factors. A fundamental driving force is purchasing power parity. Prices in Norway relative to prices in other countries, measured in a common currency, have remained fairly stable over time. Purchasing power parity can be illustrated by movements in the relationship between the Norwegian krone and the German mark in the last 30 years of the mark's life as a currency.