Now that the interest rate has moved up to a fairly normal level, the rise in house prices has come to a halt, and prices are now falling. We have seen that when the interest rate is raised to curb the rise in prices for goods and services, interest-rate setting also contributes to stabilising asset prices. Moreover, we believe that our communication, where we emphasise that the interest rate is set with view to stabilising inflation, and with forecasts for the interest rate ahead, has contributed to dampening fluctuations. It is nevertheless important to be aware that in a small open economy like Norway there is little room for setting the interest rate at a level that diverges from that of other countries with the aim of influencing property prices and credit growth. The task of steering inflation is in itself demanding. With Norway’s balance-of-payments position, the effects on capital movements and the krone exchange rate may be considerable. Pursuing a very firm approach to steering property prices and credit will easily lead to a krone out of balance and result in adverse effects on inflation and inflation expectations. Monetary policy contributes to stabilising developments in the economy. Nonetheless, in some areas, the framework may lead to a situation where business cycles may be selfamplifying. In the following, I will focus on aspects of the functioning and regulation of the housing market and banking activities. The interplay between developments in the housing market and the credit market is important for stability in our economy.

The probability of realization of credit risk would grow particularly in an economic slowdown or a situation less favourable than the one observed in the recent years. Presently, we see growing indications of possible problems and increased uncertainty – globally and in the euro area – which could, through certain channels, bring negative effects domestically. From the perspective of the sector, 2019 will also be dominated by the asset review and stress test in several banks. We are at the stage of finalising the preparations for the practical implementation of these processes. They are under the lead of the European Central Bank, but with the active cooperation of the BNB. The asset review, stress test and synchronization of our supervisory practices with the European Central Bank are a very important, though not the only, element of the efforts associated with Bulgaria’s plans for entry of the Bulgarian Lev in the Exchange Rate Mechanism (ERM II) and Bulgaria’s accession to the Single Supervisory Mechanism. These strategic steps should be made simultaneously, according to the plan and the agreements reached with our European partners. In 2019 we expect the positive trends in the banking sector to continue altogether, however with possible increased challenges associated with the general economic environment banks operate in. Concurrently, in the coming months we will evidence processes of potentially long-term consequences directly impacting the sector, aimed at achieving a qualitatively higher degree of integration of Bulgaria into the European financial and institutional infrastructure. 1/1  BIS central bankers' speeches