svein gjedrem : experiences with the financial crisis lecture by mr svein gjedrem, governor of norges bank ( central bank of norway ), at the centre for monetary economics ( cme ) / bi norwegian school of management, oslo, 30 september 2009. the text below may differ slightly from the actual presentation. * 1. * * introduction the last time i addressed this assembly was on 12 september 2008, only a few days before the us investment bank lehman brothers filed for bankruptcy. the norwegian economy had entered a new phase. low inflation and high growth were late in the upturn being followed by somewhat higher inflation and slower growth. early summer the key policy rate had been raised to 5. 75 per cent – a fairly normal level. it seemed that the elevated level of capacity utilisation in the norwegian economy would gradually drift down. the economic conjuncture took a different turn. the lehman brothers ’ bankruptcy on 15 september triggered a crisis with failing confidence in banks, counterparties and contractual partners and confidence in the future plummeted. the world economy entered into a sharp downturn. it became increasingly evident that the norwegian economy would slow at a faster pace and to a further extent than we had envisaged. in august last year, manufacturing enterprises in our regional network reported that growth would hold up. in november, they described the turnaround as a “ cardiac arrest ”. developments abroad fed through to the norwegian economy, translating into a shortfall in funding for banks, weaker demand for our export goods and heightened uncertainty surrounding economic developments. the norwegian authorities responded to the slowdown in activity with active measures, and the key policy rate was reduced in steps to 1. 25 per cent to mitigate the fallout on the norwegian economy. fiscal and monetary policy have been effective and the situation in some sectors of the norwegian economy is improving. the financial industry has been exposed to a liquidity crisis, but the norwegian banking system did not experience a solvency crisis and norway escaped a real economic crisis. house prices and equity prices are again on the rise, output moved up in the second quarter and unemployment has been markedly lower through summer than we had expected. there are still risks ahead. many of our trading partners are struggling with large and mounting public debt and underlying external imbalances. this may give rise to new disturbances that may also influence our economy. 2. crisis management the financial market turbulence started in august 2007 after banks started to suffer subprime losses in the

norwegian economy is high. household consumption has continued to increase despite high inflation and higher interest rates. the employment rate is high and employment has risen further so far this year. the labour market is tight. economic growth has nevertheless slowed recently. unemployment moved a little higher in april, and the number of job postings has declined. chart 5 : wage growth has risen the tight labour market has led to a pick - up in wage growth. wage growth last year was the highest since 2011, with a further rise expected this year. the outcome of this year's wage settlement so far suggests that annual wage growth will be slightly higher than we projected in march. higher wage growth means higher business costs and could lead to higher prices for domestically produced goods. the krone depreciation will generate higher costs for imported goods ahead. chart 6 : further rate rise likely in june the committee assesses that a higher policy rate is needed to dampen inflation. since the publication of our march projections, overall economic activity has been broadly as expected. excluding energy prices, consumer price inflation has also moved as projected. higher wage growth and the krone depreciation will contribute to keeping inflation elevated ahead. if the krone remains weaker than projected or pressures in the economy persist, a higher policy rate than envisaged earlier may be needed. the future policy rate path will depend on economic developments, but we will most likely raise the policy rate again in june, at which time we will also present updated forecasts for the norwegian economy. 2 / 2 bis - central bankers'speeches