home and abroad – were set at low levels. at the same time, this amplified the cyclical upturn in norway. towards the end of the decade, during the financial crisis, the interest rate was reduced sharply and to record - low levels. the decision to lower interest rates was undoubtedly not a difficult decision to make at the time. a persistently low interest rate, on the other hand, can pose a challenge to financial stability in an economy where there is a strong willingness to borrow and property prices are rising. despite challenges met over the past decade, inflation has been fairly stable and close to the target, which shows that monetary policy has been effective. compared with the 1980s, for example, inflation has been considerably lower and growth in the mainland economy has been markedly higher. there has been no conflict between low inflation and high economic growth, as previously claimed by economists. bis central bankers ’ speeches the guidelines and the financial crisis the financial crisis in 2008 put our economic policy guidelines to a severe test. the interest rate cuts that followed from the inflation target led to a reduction in households ’ annual interest expenses of around nok 40 billion, or around 4 per cent of their disposable income. the krone depreciated and acted as a buffer. the burden on leveraged companies was eased and investment projects became profitable in an environment of lower interest rates. altogether, monetary policy made a substantial contribution to norway ’ s resilience to the crisis. bis central bankers ’ speeches well anchored inflation expectations made monetary policy effective – the reduction in norges bank ’ s key policy rate was perceived as a decline in the real interest rate. other central banks experienced that there was little scope for reducing the real interest rate to a sufficiently low level. this downturn contrasts sharply with the downturn in the 1980s when the interest rate had to be maintained at a high level to defend the krone exchange rate. at that time, there was a lack of confidence in both monetary policy and fiscal policy. the costs were substantial. unemployment increased, in line with that experienced in some european countries today. when the financial crisis reached norway in 2008, we were in a much better position. a long period of substantial petroleum revenues – and a clear savings plan – had provided us with considerable leeway. as a result, fiscal policy could also be used effectively during the downturn. the guidelines stipulate that the government budget deficit shall over time be equivalent to 4 per cent of the capital in the government

øystein olsen : the economic outlook address by mr øystein olsen, governor of norges bank ( central bank of norway ), to invited foreign embassy representatives, oslo, 29 march 2011. the address is based on the assessments presented at norges bank ’ s press conference following the executive board ’ s monetary policy meeting on 16 march, monetary policy report 1 / 11 and previous speeches. please note that the text below may differ slightly from the actual presentation. * * * excellencies, ladies and gentlemen, i am happy to continue the tradition of my predecessor by inviting you to norges bank to discuss economic developments in norway. economic trends during the past few weeks, the world ’ s attention has been focused on the sufferings caused by the earthquake in japan, as well as escalating political unrest in middle east countries. the economic impact of these events is still uncertain. apart from these, the economic and financial news of the past year has, on balance, been positive. the global recovery has gained strength, even though uncertainties persist. a common feature of the countries that fared well through the financial crisis was that they had kept their house in order. norway falls into this group, although our abundant natural resource wealth puts us in a unique and favourable position. against this backdrop, i would like to comment on our experience with implementing the prevailing frameworks for monetary and fiscal policy. today we can look back at ten years of inflation targeting and the fiscal rule. despite the financial crisis, this has been a golden period for norway. economic developments have been influenced by changes in global trade patterns. asia has replaced europe as our main trading partner for many goods, and norway has reaped significant gains from terms - of - trade effects. national income is almost 30 per cent higher in real terms than ten years ago. bis central bankers ’ speeches while in the 1980s the advanced economies clearly dominated the performance of the global economy, the contribution to global growth of the emerging economies during the last decade, substantially exceeded that of the advanced economies. moreover, during the global crisis of 2008 – 2009, growth in emerging economies was sustained, while it fell sharply in the oecd area. as growth in the advanced economies now remains depressed, emerging economies will continue to dominate the performance of the global economy. this tendency is reflected in developments in the global oil market, where the composition of crude oil consumption has shifted from advanced to emerging market economies. during the last decade, global demand for oil