- financed enterprises – often labour - intensive – budgets are adjusted to the wage growth expected by the government. this is usually in line with assumptions about cost inflation in the economy as a whole and with the inflation target. if wages rise more sharply, efficiency must be increased in order to minimise the adverse impact on service production and customers. norges bank's most important instrument is the interest rate on banks'deposits with norges bank ( the sight deposit rate ), also referred to as the key policy rate. the key policy rate influences interest rates on interbank loans. banks ’ deposit and lending rates and bond yields depend on the current key policy rate and expectations as to future changes in this rate. lending rates in state banks are also linked to the interest rate on interbank loans and bond yields. the aim of preventing inflation expectations from becoming entrenched below the operational target of 2. 5 per cent was one of the main reasons the interest rate was lowered to a very low level in 2003 and 2004, when inflation receded and approached zero. low interest rates have stimulated demand and output and gradually led to the prospect of higher inflation, which we are addressing by increasing the interest rate. the labour market is an important factor in how the interest rate functions. a rise in the interest rate curbs aggregate demand for goods, services and labour, and eases the pressure on wages and prices. these effects are amplified by the impact of the interest rate on the krone exchange rate. higher interest rates contribute in isolation to krone appreciation and to lower profitability in the internationally exposed sector. this can result in lower employment and wage growth in this sector. expectations with regard to price developments also influence wage demands and have an effect when companies adjust their prices. the inflation target can provide an anchor for these expectations. even though demand for labour is strong, there is a risk that outflows from the labour market to various social security schemes will remain high. sickness absence is high, and the share of the working - age population on rehabilitation schemes or receiving disability pensions is rising. many wage - earners choose to take early retirement under the afp scheme ( contractual early retirement ) when they reach 62 years of age, and – because this age group is expanding sharply – this number will probably increase in the next few years. in norway, close to 600 000 persons of working age receive social security benefits or pensions. this is equivalent to 25 per cent of the labour force. this is the norwegian economy

mr. stals discusses the current monetary situation in south africa and the implications for 1998 address by the governor of the south african reserve bank, dr. c. stals, at an investment conference arranged by huysamer stals in johannesburg on 18 / 11 / 97. 1. the task and function of monetary policy monetary policy is about money. governments give central banks the special right to issue money, and also a mandate to manage the money system in the interest of economic development. in the final situation, monetary policy is about the quantity of money, the price of money and the value of money. in the broad context of macroeconomic policy, the central bank is normally tasked with the function of protecting the value of money. this is but an immediate objective, making an important contribution to the achievement of the ultimate goal of economic policy, which is to sustain optimum economic development that will create more jobs and lead to an improvement in the standard of living of all the people of the country. monetary policy cannot be used to solve all the macroeconomic problems of a country. however, a stable financial environment with a low rate of inflation is regarded as an important precondition for the solution of many of the existing macroeconomic problems in any country. by focusing on the maintenance of low inflation, central banks do not distance themselves from the broader macroeconomic problems such as excessive budget shortages, untenable balance - of - payments deficits, short - term business cycle developments or uncompetitive international trade positions. it is indeed only in conditions of a stable financial environment, that is low inflation, that the real nature of the more fundamental macroeconomic deficiencies will be exposed, diagnosed, understood and rectified. in most cases, remedial action for structural economic ails will also not produce the required corrections in an inflationary environment. pressure is often put on central banks to harness the power of money creation for purposes other than pure monetary policy objectives, for example to facilitate the financing of public sector budget deficits, or to stimulate real demand for goods and services, or to help small businesses. pursuing all kinds of non - monetary objectives with monetary policy will, however, normally lead the country inevitably on the dead - end road of higher inflation. 2. recent monetary developments in south africa the main objective of monetary policy therefore is and should be to keep inflation low. in the absence of a national commitment to a predetermined and quantified target for inflation, the reserve