There may be several reasons for this. Calculated forward rates will usually reflect market expectations concerning the future interest rate path. Market interest rates may, however, be influenced by extraordinary supply and demand factors that do not have a bearing on the outlook for underlying economic developments or monetary policy. But market participants may also have a different perception of the interest rate path that is required to stabilise inflation at target. The difference can also be ascribed to the downward pressure exerted on long-term interest rates in many countries by extraordinary conditions in international capital flows. Possible challenges of an explicit forecast of future interest rates To what extent a central bank should publish an interest rate forecast has been the subject of discussion in international economic literature. 4 The discussion has arisen as a result of the different solutions chosen by different central banks for different reasons. It has been argued that the central bank might feel too bound by a previously announced interest rate path. Publication of the Bank’s interest rate forecast might impose constraints on monetary policy, making it more difficult to adjust the interest rate to changes in economic developments. The interest rate path may be perceived as a straightjacket, preventing the central bank from pursuing the policy it considers to be appropriate at any given time. In addition, if the central bank should deviate from the previously published interest rate forecast, the Bank might be accused of misleading the market. Confidence in the central bank may thereby be undermined.

Forecasts for inflation, output, the interest rate and other variables are based on an assessment of the current situation and a perception of how the economy functions. Disturbances to the economy may result in changes in the forecasts. Our ambition must be to reduce uncertainty with regard to our own response pattern. That actual interest rate developments will deviate somewhat from Norges Bank's forecast must be expected to be the rule rather than the exception. There is, in other words, substantial uncertainty associated with future interest rates. I would draw your attention to the fact that the Executive Board, when providing a more precise indication of where the interest rate level should lie over the coming four month period, operates with an interval of around one percentage point. Uncertainty does not of course diminish as we look further ahead. This is a familiar situation for financial market participants, who are constantly changing their expectations concerning future interest rates as the economy is exposed to disturbances. Market participants’ interest rate expectations can be calculated on the basis of observed money market rates. The deviation between market expectations and the actual interest rate has been substantial in periods. One important reason for this is that the Norwegian economy has been exposed to  7  For more about these criteria, see Qvigstad, J.F.Q. (2005): “When does an interest rate path “look good”? Criteria for an appropriate future interest rate path - A practician’s approach”, Staff Memo 2005/6, Norges Bank, se www.norges-bank.no.