have curbed debt growth and demand pressures in the norwegian economy. but in an environment of persistently low external interest rates, such a policy would likely have led to a sharp appreciation of the krone, resulting in too low levels of inflation and economic activity. thus, the crisis in europe and weak growth in the us are also contributing to keeping interest rates in norway at a low level. the main objective of monetary policy in norway is low and stable inflation. this objective provides the economy with a nominal anchor. with firmly anchored inflation expectations, monetary policy can contribute to stable developments in the real economy. chart 6 the operational target of monetary policy is annual consumer price inflation of close to 2. 5 percent over time. over the past ten years, average inflation has been somewhat below, but close to, 2. 5 percent. a credible and firmly anchored monetary policy can contribute to curb the impacts of external shocks. this increases the resilience of the norwegian economy. more resilient banking sector the financial crisis provided us with some important insights. first, the crisis illustrated that low and stable inflation is not sufficient to secure financial stability. second, the crisis revealed severe shortcomings in banking regulation. banking and financial sector regulation is now being reformed in many countries. norwegian banks have become more solid in recent years. this is a positive development. banks ’ capital, in particular that of the largest banks, should be increased further in order to satisfy the new regulations. bis central bankers ’ speeches the forthcoming regulatory framework for banks in the eea includes a countercyclical buffer – a capital requirement that can be increased in upturns and turned off in downturns. when banks are required to build up an additional buffer, they are better equipped to cope with periods of rising losses. the buffer will strengthen the resilience of the banking sector during an upturn. it may also counteract the build - up of financial imbalances, although the effect is uncertain. thus, norges bank cannot disregard taking financial imbalances into consideration when setting the key policy rate. the criteria for the conduct of monetary policy remain firm, also after the introduction of a countercyclical capital buffer. later this year, norges bank will provide advice to the ministry of finance on the size of the countercyclical buffer. an integrated analysis and set of forecasts form a common basis, both for this advice, and for the bank ’ s monetary policy decisions. the norwegian economy is also

by tightening policy, we also contribute to a stronger krone than would otherwise have been the case. a stronger krone reduces prices for imported goods. the inflationary impulses that triggered the surge in inflation are receding. energy prices have fallen. global inflation is coming down. global trade in goods is flowing as normal, and freight rates have returned to pre - pandemic levels. this will gradually curb inflation in norway too. nevertheless, we believe it will take time for inflation to return to target. slide 6 : wage growth has accelerated one reason for this is that labour costs have shown a marked rise. wage growth this year is set to be the highest in 15 years. still, the pay increases are not large compared with the rise in living costs many are facing. according to our september projections, it appears that purchasing power will weaken this year too. 3 / 6 bis - central bankers'speeches when we make projections for wage growth, we use various sources of information. our projections of wage growth are based on the norwegian model of wage determination and quantified economic relationships. in addition, our wage projections are based on the responses we receive when we ask the social partners, among others, what their wage growth expectations are for this year and next. these expectations have proved to be fairly closely in line with actual wage growth. as this assembly is well aware, the norwegian wage determination process is characterised by a high degree of coordination. manufacturing negotiates first and agrees on wage increases based on firms'ability to pay, which defines the wage norm that serves as a reference for subsequent settlements. the historical relationships show that firms'ability to pay is one important factor explaining wage growth. price expectations, as estimated by the norwegian technical calculation committee for wage settlements, are also important. in addition, wage growth is influenced by labour market tightness. when unemployment is low and employers face skills shortages, wages tend to rise faster. coordinated wage determination, where the parties to wage settlements emphasise high employment, reduces the risk of a wage - price spiral. as a result, we need to raise the policy rate to a lesser extent than would otherwise have been necessary in the face of the cost shock that has hit the norwegian economy. the norwegian wage determination system thus makes it easier for us to succeed in reducing inflation without many people losing their jobs. but wage determination alone cannot ensure that inflation is reduced. that is a task for monetary policy. slide 7 : we have a floating exchange rate norges bank