rates, which may increase interest burdens and curb household borrowing. regardless of what happens in the years to come, however, interest rates cannot fall as far as in the past 25 years. those who borrow today must consider whether they are taking on an amount of debt they can live with over time. the rear - view mirror will be poor guidance going forward. experts and economists like myself have been mistaken before, but there is one thing i am quite sure about : nothing grows forever. expectations shift. when borrowers discover that prospects are not as bright as before, they will become more cautious. so, if anything, norwegian household debt will be reduced, perhaps not in absolute terms, but at least relative to income. the higher the level of initial debt, the greater the risk to the norwegian economy. a sudden debt correction would then be more likely, potentially resulting in a sharp fall in gdp. when economic conditions deteriorate, good credit becomes bad debt. households will then deleverage and cut back on consumption, adversely affecting businesses. it will then take time for growth to recover, as we are witnessing in many european countries that continue to struggle following the financial crisis. norway has a well - equipped toolkit for counteracting crises. there is room for manoeuvre in monetary and fiscal policy. norwegian authorities have also introduced a number of measures to reduce the vulnerability of the economy to shocks, especially in the wake of the financial crisis in 2008 and 2009. banks are required to hold more equity and more liquid assets, which strengthens banks ’ resilience. borrowers are also regulated. the regulation on requirements for new residential mortgage loans was first introduced in 2015. the regulation limits the level of debt a household can take on, reducing the number of vulnerable households. recently, limitations on consumer credit have also been introduced. together with room for manoeuvre in fiscal policy and a gradual normalisation of the policy rate, we may believe that these measures will be sufficient to avoid a new crisis. debt will probably be reduced, but the timing and extent are uncertain. if we are fortunate, there will be a gradual adjustment without major shocks. but we cannot assume that this will happen. if 6 / 7 bis central bankers'speeches debt now still continues to rise, further measures may be necessary. the economy must also tolerate a sharp correction if a shock should occur. the norwegian economy is resilient. businesses have shown the ability to restructure, innova

may appreciate. but there are also opposing forces in the foreign exchange market. the basic balance deficit suggests a weaker krone. if developments in the world economy translate into lower prices for oil and other export goods, the value of the krone may also fall. if the krone depreciates, the key rate must be raised to a higher level than otherwise in order to keep inflation in check, unless slackened activity in the norwegian economy results in lower inflation. over time, however, the nominal exchange rate is not the main force. the main determinant of competitiveness in norwegian business and industry and the purchasing power of the norwegian krone is the real exchange rate. the real exchange rate can be measured in a number of ways, for example by consumer prices or labour costs in norway relative to our trading partners measured in a common currency. this provides an indication of the relationship between the level of external and domestic prices, which in turn reflects developments in cost levels. in real terms, the krone has appreciated by about 10 per cent since the mid - 1990s, while labour costs in a common currency have risen by close to 30 per cent more than among our trading partners. this may be partly ascribable to the cyclical expansion and the low level of household saving. but most likely the strong real krone reflects the substantial improvement in the terms of trade and productivity. in this respect, the strong krone is a sign that the norwegian economy is faring well. looking ahead, the outlook and balance of risks suggest that the key policy rate may be raised further in the period to summer. the prospect of higher price and cost inflation will in the short term outweigh weaker growth in the world economy. at the meeting on 13 march, norges bank ’ s executive board held the interest rate unchanged at 5. 25 per cent and presented the interest rate path shown in this chart. the board ’ s strategy is that the key policy rate should be in the interval 5 - 6 per cent in the period to end - june, unless the norwegian economy is exposed to major shocks. the projections are uncertain. new information may reveal aspects of economic developments that indicate that the norwegian economy is moving on a different path than projected. on the one hand, unexpectedly high cost inflation, higher import prices or a weaker krone may result in higher - than - projected inflation. on the other hand, if the global downturn has a stronger - than - expected impact on the norwegian economy