, 0 11, 0 10, 0 iceland 9, 0 8, 0 9, 0 8, 0 norway 7, 0 6, 0 5, 0 7, 0 6, 0 5, 0 denmark 4, 0 3, 0 sweden 2, 0 finland ( emu ) 4, 0 3, 0 2, 0 sg 240802 nominal effective exchange rates january 1990 = 100 appreciation iceland ( january 1997 = 100 ) denmark norway sweden finland depreciation source : bank of england and central bank of iceland sg 240802 norway : effective exchange rate and 12 - month interest rate differential against trading partners 4, 0 3, 5 3, 0 interest rate differential ( 12 months ) ( left - hand scale ) 2, 5 2, 0 effective exchange rate ( right - hand scale ) 1, 5 1, 0 jan. 99 jul. 99 jan. 00 jul. 00 jan. 01 jul. 01 jan. 02 jul. 02 source : norges bank sg 240802 norway : effective exchange rate forward exchange rate ( uip ) source : norges bank sg 240802

a necessary policy adjustment later could be far more painful. monetary policy central banks in other countries are deploying strong measures to buoy up economic activity and inflation. key interest rates in many countries are close to zero. central banks in the us, uk and japan have made large - scale bond purchases and thereby expanded their balance sheets in order to push down long - term interest rates. it is likely that the sharply expanded access to long - term liquidity from the european central bank ( ecb ) has reduced the risk of a banking crisis in the euro area. at the same time, ecb measures have contributed to stabilising government bond markets, and short - term funding costs for italy and spain have declined. bis central bankers ’ speeches chart 9 the eu is working on measures to restore financial market confidence – and public confidence. greece has reached an agreement with its private creditors on a substantial debt restructuring. on this basis, euro area heads of state or government have approved a new loan package for greece. banks have been instructed to increase their core capital. chart 10 bis central bankers ’ speeches the norwegian economy is still well equipped to withstand the negative effects of the financial crisis. oil prices are high, contributing to norway ’ s favourable terms of trade. growth is being sustained by high activity in the oil industry. we have room for manoeuvre in economic policy. however, a number of enterprises are feeling the impact of the downturn abroad. some segments of the export industry are feeling the effects of lower turnover and a strong krone. a high level of uncertainty is causing households and enterprises to be more cautious in their consumption and investment decisions. at the same time, house prices and household debt are still rising. capacity utilisation in the norwegian economy is now near a normal level. growth in mainland gdp is projected at about 3 percent this year and in the years ahead, broadly in pace with potential output growth. chart 11 the operational target of monetary policy is annual consumer price inflation of close to 2. 5 percent over time. recently, inflation has been low, close to 1 percent. inflation will be brought back to target, but how long this will take depends on the disturbances to which the economy is exposed and their effect on the prospects for the path for inflation and the real economy ahead. when setting the key policy rate, we do not exclusively assign weight to bringing inflation back to target, but we also take into account the impact of the interest rate on output and employment. the inflation