Against this background, Norges Bank increased the key policy rate in September –for the first time in seven years. If the economy evolves as we now expect, this is the beginning of a gradual normalisation of the interest rate level. A long period of low interest rates and mounting household debt burdens has led to greater uncertainty surrounding the effects of higher interest rates. This suggests a cautious approach to interest rate setting. Rising protectionism internationally and turbulence in some emerging economies adds to the risk picture, with potentially strong negative effects for Norway. Communication is an important part of our monetary policy. We aim to be transparent and to communicate frequently, simply and clearly. We have published our own interest rate projections since 2005. All through this year we have repeatedly indicated that the key policy rate most likely would be raised after summer. Financial stability The financial crisis was a reminder that price stability is not sufficient to guarantee financial stability. In an environment of low global interest rates, there is a clear risk of a build-up of financial imbalances, which increases the risk of new economic downturns further out. Norges Bank has thus in periods kept its key policy rate somewhat higher than implied by a short-term goal of inflation and output stability. This does not mean that asset prices or debt have been given independent roles as target variables of monetary policy. The decisive factor has been the 2/3  BIS central bankers' speeches  consideration of economic stability over time.

Commodity prices fell, but soon rebounded. Norwegian banks were not directly exposed to loss-making financial instruments backed by subprime US housing mortgages. The banks suffered for a short period when international liquidity dried up, but these problems were resolved. In addition, substantial fiscal leeway enabled policy to respond forcefully, allied with a slashing of interest rates, from 5.75 percent in September 2008 to 1.25 percent in June 2009. The economy recovered rather quickly, and we did not need to resort to quantitative easing or interventions in the foreign exchange market. When the oil price plummeted in 2014 and 2015, the value of our currency fell sharply, reflecting weaker terms of trade. Norges Bank reduced the key policy rate. This dampened the decline and facilitated structural adjustments in the Norwegian economy. As the krone depreciation did not result in demands for wage compensation, competitiveness improved. Fiscal policy also responded forcefully. Together, this enabled a reasonably swift return to more normal economic conditions. At the same time, low interest rates contributed to increasing housing prices and debt levels in Norway, as in some other countries. We are ready to normalise monetary policy Over the past couple of years, growth in the Norwegian economy has been solid, underpinned by an economic upturn among our trading partners, increasing oil prices and low interest rates. The labour market has improved. Spare capacity is gradually diminishing, and capacity utilisation now appears to be close to a normal level. Underlying inflation is close to the 2 percent inflation target.