of the nok fx market as we did during the pandemic when the market seized up. the threshold for intervening in the fx market with the aim of influencing the krone exchange rate is very high. the effects of such intervention are uncertain. research and international experience indicate that the effects are at best small and short - lived, a likely reason being that intervention cannot in the long run counter other economic forces driving exchange rates. there is also a risk that the use of intervention may raise doubts about the objectives of monetary policy. with a floating exchange rate, as we have in norway, we must accept that the krone exchange rate fluctuates. this imposes some costs on both businesses and households. the exchange rate may at times move in an undesirable direction. exchange rate movements may make monetary policy trade - offs more challenging. but a floating exchange rate also offers some clear advantages. it provides leeway to set 3 / 4 bis - central bankers'speeches the interest rate based on the outlook for the norwegian economy. a floating exchange rate can act, and has acted, as a buffer against downturns and can facilitate structural changes in the economy. this can also be of good use in the future. chart 7 : the policy rate will likely be held at today's level for some time when we set the policy rate, we must weigh different considerations against each other. if we lower the policy rate prematurely, inflation could remain above target for too long. on the other hand, an overly tight monetary policy could restrain the economy more than needed. inflation has slowed considerably. so, why do we still judge it appropriate to keep the interest rate high? inflation is still above target, and some factors could contribute to keeping inflation elevated ahead. one factor is the krone depreciation. the other is the sharp rise in wages in recent years. the wage increases have not been large compared with the increase in living costs. but, with modest productivity growth, wage increases result in higher business costs. this will likely slow further disinflation. there is uncertainty about future economic developments. in its interest rate deliberations, the committee was particularly concerned with developments in the krone exchange rate and the potential implications for inflation. if there are prospects that inflation will remain elevated longer than previously projected, the policy rate may be set higher. if there is a more pronounced slowdown in the economy or prospects suggest that inflation will return to target faster than projected in june,

inflation expectations nevertheless indicate that expectations are well anchored around the inflation target in the long term. the first signs of the effects of the interest rate cuts appeared in the foreign exchange market. the interest rate differential against other countries narrowed. it became more attractive to borrow and less profitable to invest in the norwegian krone. the movement in the krone exchange rate was reversed and the krone depreciated through 2003 and into 2004. however, the impact on the krone exchange rate has been considerably dampened because external interest rates have remained low. high prices for oil and gas and other export goods also contributed to an appreciation of the krone last year. the depreciation of the krone in 2003 contributed to restraining the fall in prices for imported goods. the effect occurred gradually. companies and importers may have preferred to observe changes in the exchange rate over time before changing their selling prices. after several expensive wage settlements and a short period of a strong krone had weakened profitability in the norwegian business sector, the depreciation of the krone contributed to curbing the decline in activity and employment. the downturn was short - lived. together with private consumption and fixed investment in the petroleum sector, traditional exports were an important factor underlying growth in the early stages of the recovery that started in the first half of 2003. prices for many of our main export goods have risen as a result of strong growth in new markets. however, growth in norway ’ s total exports excluding oil and gas is lower than import growth among our trading partners. mainland fixed investment has gradually become an important driving force in the upturn. investment has picked up in most industries and growth was stronger than expected towards the end of 2004. norges bank ’ s regional network has registered rising investment in all industries. petroleum investment in particular appears to be growing at a faster pace than projected. this may continue to boost mainland output. in the last few years, household demand has been underpinned by low interest rates, high real wage growth and higher asset prices. according to preliminary national accounts figures, private consumption expanded by 4. 3 per cent last year. house price inflation has slowed somewhat, but remains high. in 2004, housing starts were the highest in several years. home refurbishment is probably also rising sharply. overall, the supply of capital to households has increased sharply. debt accumulation was somewhat more than 11 per cent in 2004 and is now considerably higher than growth in household disposable income. this largely reflects the