If developments in the Norwegian economy are broadly in line with that projected in the period ahead, there are nevertheless prospects that the key policy rate will be reduced further in the course of the first half of this year. The analysis in the latest Monetary Policy Report suggests that capacity utilisation in the Norwegian economy will decline ahead. Moreover, there are prospects that unemployment may increase somewhat, but reduced labour immigration will likely limit the increase. The krone deprecation since autumn 2014 will contribute to underpinning inflation in the coming period, but inflation is projected to move down further ahead. In the conduct of monetary policy, we seek to mitigate the risk of a build-up of financial balances, but monetary policy cannot assume a primarily responsibility for financial stability. Should financial imbalances build up further, the required countercyclical capital buffer for banks may be increased. Rapid rises in house prices and debt may also require the implementation of other, more targeted measures in order to mitigate the risk associated with the high level of household debt. In March this year, the Ministry of Finance requested Finanstilsynet (Financial Supervisory Authority of Norway) to consider whether it would be appropriate to implement measures aimed at limiting growth in credit and house prices. Norges Bank submitted its comments today where we endorse Finanstilsynet’s proposal while underlining the importance that regulation should give the banks flexibility – and responsibility for conducting sound credit assessments.

High unemployment and continued deleveraging in the private and public sector will likely weigh down on the euro area economy for a long period ahead. Growth is slowing in China, partly reflecting weaker investment in the real estate sector. BIS central bankers’ speeches  1  In April, the IMF published a new assessment of the world economic outlook. The IMF forecast for global growth was revised down by ¼ percentage point, owing to weaker growth prospects for emerging economies. The IMF projects global GDP growth at 3.5 percent in 2015, rising to 3.8 percent in 2016 and judges that financial stability risks have increased, with greater volatility in both financial markets and foreign exchange markets. Consumer price inflation is low among most of our trading partners and close to zero in many countries. The oil price decline is contributing to holding down inflation. Many central banks have responded to the low level of inflation by further monetary policy easing. Policy rates are negative in some countries. The European Central Bank (ECB) and Sveriges Riksbank have, in addition, taken unconventional measures to counter the risk of deflation and stimulate activity, with large-scale purchases of securities, including government bonds. Long-term government bond yields have continued to fall in many countries. Expansionary monetary policies, including that of the ECB, have likely contributed to the fall in long-term interest rates. The rise in international interest rates has been pushed further out in time. Low foreign interest rates influence developments in the krone and hence the inflation outlook in Norway.