the economy. even though norges bank publishes an interest rate forecast, this does not mean that the interest rate will follow this precise path throughout the projection period. forecasts of inflation, output, the interest rate and other variables are based on an assessment of the current situation and a perception of how the economy functions. disturbances to the economy may result in changes in the forecasts. data revisions imply that the current economic situation is not fully known. our ambition must be to reduce uncertainty with regard to our own response pattern. that actual interest rate developments will deviate somewhat from the bank's forecast will probably be the rule rather than the exception. in monetary policy report 2 / 07, it was pointed out that high capacity utilisation and higher cost inflation may on the one hand lead to higher - than - projected inflation. sustained high productivity growth, a more pronounced shift towards imports from low - cost countries and a stronger krone exchange rate may on the other hand result in lower - than - expected inflation. when norges bank ’ s executive board decided on 26 september to raise its key policy rate by 0. 25 percentage points to 5. 0 per cent, it was stated in the press release that growth in the economy has been stronger than expected, cost inflation is on the rise and that there are prospects of a further pick - up in price inflation. it was also pointed out that financial markets have been turbulent since the beginning of august, the global economic outlook is uncertain and the krone is strong. the executive board therefore considered the alternative of leaving the key policy rate unchanged at this meeting. in addition, it was stated that if the turmoil in financial markets persists and the krone remains strong, and this has considerable consequences for the outlook for inflation, output and employment, norges bank ’ s key policy rate may be raised to a lesser extent than envisaged in monetary policy report 2 / 07. thank you for your attention.

saved for future generations. • monetary policy is aimed at ensuring low and stable inflation. monetary policy the operational target of monetary policy as defined by the government is inflation of close to 2. 5 per cent over time. it is just as important to avoid an inflation rate that is too low as it is to avoid an inflation rate that is too high. the inflation target provides economic agents with an anchor for their decisions concerning saving, investment, budgets and wages. the inflation target also provides a framework for monetary policy ’ s contribution to stabilising output and employment. the economy grows thanks to increases in the supply of labour and capital and technological progress. average growth over time is referred to as trend growth. owing to shocks to the economy, actual growth fluctuates around trend growth. the chart shows actual mainland gdp growth and trend gdp growth. normally, norges bank sets the interest rate with a view to achieving inflation of 2½ per cent two years ahead. a two - year horizon is applied because it takes approximately two years for an interest rate change to have a full impact. a flexible exchange rate norway is a small open economy with a floating exchange rate. the norwegian krone does not stand out as particularly volatile. on the contrary, in countries like sweden, the uk, switzerland, australia, canada and new zealand, the exchange rate fluctuates just as much - or more - than the norwegian krone. there is a cost involved for businesses in hedging against fluctuations in the krone. a krone that is stable - but too strong - also entails costs in the form of low activity. similarly, a krone that is stable but weak - is a source of high inflation. petroleum revenues generally provide substantial, but uneven currency inflows into norway. the currency flows might have resulted in a strong krone and wide variations in the exchange rate. this tendency is countered when the annual use of petroleum revenues over the central government budget is predictable and independent of annual revenue inflows, and the remainder is invested abroad. the capital outflow through the petroleum fund contributes to both curbing the appreciation of the krone and maintaining its stability. norges bank has not defined an exchange rate target. nevertheless, developments in the krone are of considerable importance to interest - rate setting because exchange rate developments have an impact on inflation and output. although the krone may fluctuate in the short term, it will generally stabilise over time. when inflation has