Short-term capital inflows and outflows are probably the most important factor determining movements in the krone exchange rate from day to day, from week to week and from one quarter to the next. They are governed by expectations concerning future returns. Changes in expectations concerning the future value of the krone can trigger extensive capital movements. As a rule, Norges Bank does not intervene in foreign exchange markets with a view to influencing the krone exchange rate. The krone is floating, and the value of the krone fluctuates in periods by the same magnitude as exchange rates in other open economies. Nevertheless, the prevailing stability of the krone is largely a reflection of confidence that inflation in Norway will be kept at a low level. Our experience is that changes in the Norwegian interest rate level only have a predictable effect on the krone exchange rate when the change in interest rates also contributes to stabilising inflation. However, the relationship between interest rates and price and cost developments is uncertain. The setting of interest rates thus requires the use of professional judgement and discretion. The basis for exercising discretion is subject to limitations, however. Should any doubt arise as to whether the interest rate is oriented towards nominal stability, this would trigger substantial capital movements. Interaction with income formation A precondition for a stable krone exchange rate against European currencies is that price and cost inflation in Norway must over time not exceed the corresponding aim for inflation of the European Central Bank (ECB).

We discussed this topic in meetings with Mr. Shuvalov, and we have now drafted a bill which is being readied for submission to the state Duma. The main features of this bill include: - Creation of a registry of leasing companies - Determination of the minimal capital of leasing companies - Increase in transparency of leasing companies 2/4  BIS central bankers' speeches  In our view it is extremely important, and already now being taken into account, that the leasing portfolio is valued at 3.2 billion rubles. This is a very large number, and, of course, it is important that this industry, which is important to the economy’s development, is sustainable, transparent and adequately regulated. The series of drafted laws has passed the first reading in the state Duma, and now there is serious work to be done in preparing them for the second reading. The most important of these is the introduction of a unified system for evaluating business reputation, management qualification requirements and requirements for the founders and owners of non-bank financial institutions. Such requirements are already defined in the banking system, and it’s very important to increase the responsibility of the owners and management of financial organisations for their sustainability and good governance, and in our opinion it is very important to bring in similar norms for non-banking organisations too. Another draft law currently in the Duma, and now particularly important, aims to improve the effectivity of regulation in the fight with insider trading and market manipulation.