germany narrowed substantially. deteriorating competitiveness due to high wage growth would no longer be remedied by means of devaluations. substantial emphasis was placed on the importance of wage formation for developments in employment. only when wage growth dropped below the level of our trading partners did unemployment begin to fall and the manufacturing sector began to pick up. thus, the fixed exchange rate policy was not introduced in order to strengthen the internationally exposed business sector. on the contrary, it was a breach in the approach whereby monetary policy and frequent devaluations had been used to shelter these sectors. the fixed exchange rate was an intermediate target for achieving low and stable inflation. the exchange rate remained stable up to autumn 1996, partly because wage growth was low and overall demand did not generate pressures in the economy. gradually, the krone began to show wider fluctuations. the experience of the last half of the 1990s demonstrated that monetary policy cannot fine - tune the exchange rate. developments in international financial markets led to more pronounced fluctuations. and more fundamentally, when labour market pressures rose and incomes policy failed, exchange rate developments no longer provided signals for wage formation and fiscal policy. high petroleum revenues, fiscal slippage and expectations of increased use of petroleum revenues contributed to this. the exchange rate was therefore no longer suitable as a nominal anchor. towards the end of the 1990s, increased emphasis was placed on the fundamental preconditions for exchange rate stability. monetary policy instruments were oriented with a view to bringing price and cost inflation down towards the price stability objective of the european central bank ( ecb ). monetary policy in most countries, price stability, or low and stable inflation, is the objective of monetary policy. historical experience from norway and other countries has shown that the absence of price stability has resulted in unstable output and employment. history shows that higher growth cannot ultimately be achieved in exchange for higher inflation. an economic policy that fuels inflation does not generate higher economic growth. on the contrary, it paves the way for subsequent recession and unemployment. after the second world war, there was a long period of trying to achieve price stability by means of various intermediate targets such as a fixed exchange rate and a target for growth in the money supply. the first explicit inflation target was introduced in new zealand in 1990. canada followed in 1991, the uk in 1992, and sweden and australia in 1993. inflation targeting is now the norm in small and medium - sized open economies. denmark is an important exception. since the mid - 1980s, denmark has

related industries. monetary policy can facilitate this process, but the necessary adjustments must take place in the business sector. at its september meeting, norges bank ’ s executive board decided to keep the key policy rate unchanged at 0. 5 percent. the executive board ’ s current assessment of the outlook and balance of risks suggests that the key policy rate will remain at today ’ s level in the period ahead, followed by a gradual increase to close to 1. 5 percent towards the end of 2020. inflation is expected to remain low in the years ahead. at the end of 2020, inflation is projected to be just below 2 percent. capacity utilisation for the economy as a whole is projected to rise gradually and to be somewhat above a normal level in 2020. this assessment is based on the outlook for economic developments abroad. while inflation is rising and growth prospects are improving internationally, global interest rates may have passed their lowest point. expected money market rates indicate that short - term interest rates among our trading partners will rise in the years ahead. however, interest rates will probably remain low, compared with pre - crisis levels, for an extended period of time. if developments abroad take an unexpected turn, the norwegian economy will be affected. the challenges may become more severe than they seem at present. however, we believe the economic policy setup, with substantial fiscal policy leeway, a flexible labour market and our monetary policy framework, will enable us to face these challenges. and not to forget – a normalisation of monetary policy is most notably an indication of a normalisation of economic developments in the countries surrounding us. this is most welcome. thank you for your attention. 2 / 2 bis central bankers'speeches