very solid in recent years. however, that statement is no longer true of subprime mortgages with adjustable interest rates, which currently account for about two - thirds of subprime first - lien mortgages or about 9 percent of all first - lien mortgages outstanding. for these mortgages, the rate of serious delinquencies – corresponding to mortgages in foreclosure or with payments ninety days or more overdue – rose sharply during 2006 and recently stood at about 11 percent, about double the recent low seen in mid - 2005. 3 the rate of serious delinquencies has also risen somewhat among some types of near - prime mortgages, although the rate in that category remains much lower than the rate in the subprime market. the rise in delinquencies has begun to show through to foreclosures. in the fourth quarter of 2006, about 310, 000 foreclosure proceedings were initiated, whereas for the preceding two years the quarterly average was roughly 230, 000. 4 subprime mortgages accounted for more than half of the foreclosures started in the fourth quarter. the sharp rise in serious delinquencies among subprime adjustable - rate mortgages ( arms ) has multiple causes. " seasoned " mortgages – mortgages that borrowers have paid on for several years – tend to have higher delinquency rates. that fact, together with the moderation in economic growth, would have been expected to produce some deterioration in credit quality from the exceptionally strong levels seen a few years ago. but other factors, too, have been at work. after rising at an annual rate of nearly 9 percent from 2000 through 2005, house prices have decelerated, even falling in some markets. at the same time, interest rates on both fixed - and adjustable - rate mortgage loans moved upward, reaching multi - year highs in mid - 2006. some subprime borrowers with arms, who may have counted on refinancing before their payments rose, may not have had enough home equity to qualify for a new loan given the sluggishness in house prices. in addition, some owners with little equity may have walked away from their properties, especially owner - investors who do not occupy the home and thus have little attachment to it beyond purely financial considerations. regional economic problems have played a role as well ; for example, some of the states with the highest delinquency and foreclosure rates

related industries. monetary policy can facilitate this process, but the necessary adjustments must take place in the business sector. at its september meeting, norges bank ’ s executive board decided to keep the key policy rate unchanged at 0. 5 percent. the executive board ’ s current assessment of the outlook and balance of risks suggests that the key policy rate will remain at today ’ s level in the period ahead, followed by a gradual increase to close to 1. 5 percent towards the end of 2020. inflation is expected to remain low in the years ahead. at the end of 2020, inflation is projected to be just below 2 percent. capacity utilisation for the economy as a whole is projected to rise gradually and to be somewhat above a normal level in 2020. this assessment is based on the outlook for economic developments abroad. while inflation is rising and growth prospects are improving internationally, global interest rates may have passed their lowest point. expected money market rates indicate that short - term interest rates among our trading partners will rise in the years ahead. however, interest rates will probably remain low, compared with pre - crisis levels, for an extended period of time. if developments abroad take an unexpected turn, the norwegian economy will be affected. the challenges may become more severe than they seem at present. however, we believe the economic policy setup, with substantial fiscal policy leeway, a flexible labour market and our monetary policy framework, will enable us to face these challenges. and not to forget – a normalisation of monetary policy is most notably an indication of a normalisation of economic developments in the countries surrounding us. this is most welcome. thank you for your attention. 2 / 2 bis central bankers'speeches