Wage growth may slow. Lower wage growth combined with lower profit margins will result in more subdued inflation. Second, the effect of interest rate changes may be amplified because the interest rate also affects the krone exchange rate. When the interest rate was lowered in 2003, borrowing increased and investment in NOK declined, leading to a depreciation of the krone. A weaker krone results in higher exports and improved profitability in Norwegian business and industry. This normally leads to higher employment, and a rise in wage growth and inflation. Third, inflation expectations will also influence wage demands and have an effect when companies adjust their prices. It may be difficult to perceive how expectations are generated. Confidence in the inflation target may provide an anchor. The labour market is also exposed to other disturbances that may have an effect on employment, wage growth and thereby inflation. Such disturbances influence the orientation of monetary policy. Disturbances that result in a tight labour market and high capacity utilisation can lead to higher wage growth and thereby higher inflation. A tight labour market will thus imply higher interest rates. Norway has substantial petroleum wealth, but our most important resource is labour. A smoothly functioning labour market is therefore important to our welfare. Although it is difficult to quantify in exact terms the contribution of labour to value added, there is no doubt that even a small increase in the “return” on labour could generate considerable gains. Labour market legislation must be formulated to provide incentives to work.

(b) Role of Financial Integration 1/3  BIS central bankers' speeches  The private sector’s role in enhancing shared prosperity in ASEAN must be facilitated by an enabling environment for efficient cross-border business transactions. This has been achieved through greater financial integration in ASEAN including deeper banking integration; smoother capital mobility; and efficient payment and settlement systems. ASEAN central banks have made significant strides towards this end, but by no means will we coast on by. We will continue to champion financial integration that benefits all. An Asian Development Bank study in 2013 has shown that banking integration mobilises savings towards more productive investment, thereby increasing productivity and accelerating growth. This study also showed that smoother capital mobility will facilitate more competitive and productive cross-border lending and borrowing, while promoting financial sector and capital market development. Lastly, an efficient cross-border payment and settlement systems promotes cost-effective transactions by reducing the cost of doing business. Hurdles faced by ASEAN Like it or not, the path to achieving the strategic objectives of the ASEAN Economic Community (AEC) 2025 will be filled with hurdles. The pace of convergence within ASEAN would be shaped by members’ different levels of development. It is harder for countries with resource constraints to shoulder the high costs involved in undertaking structural and institutional changes, which are required for effective integration. In overcoming such hurdles, I stand proud in acknowledging that ASEAN adopts a gradual and phased-in approach that ensures a win-win situation for all.