øystein olsen : management of the government pension fund global introductory statement by mr øystein olsen, governor of norges bank ( central bank of norway ), at the hearing before the standing committee on finance and economic affairs of the storting, oslo, 3 may 2021. * * * please note that the text below may differ from the actual address. i would like to thank the committee for the invitation to speak on the bank ’ s management of the government pension fund global ( gpfg ). norges bank manages the gpfg with the objective of achieving the highest possible return over time within the limits of the investment mandate defined by the ministry of finance. the gpfg is to be managed within an adequate control and risk management framework and in a responsible and efficient manner with a high degree of transparency. the gpfg is managed to track the benchmark index fairly closely, ie the return largely tracks the return on the benchmark index. the benchmark index is defined by the ministry of finance and endorsed by the storting. however, even though norges bank closely tracks the gpfg ’ s benchmark index, many large and small choices have to be made every day. these choices are based on a clear mandate from the authorities and a well thought - out investment strategy. the year 2020 was a special year for us all, including the gpfg. as for many others, working conditions during the covid - 19 pandemic have been demanding. the rapid spread of the pandemic in march 2020 also led to wide, abrupt swings in financial markets. the global composite equity index fell by 20 percent in 22 days. however, markets recovered rapidly, and by the second quarter the gpfg had posted one of its best ever quarterly results. for the year as a whole, the gpfg ’ s investments posted an overall return of 10. 9 percent before management costs. the return was 0. 27 percentage point higher than the return on the benchmark index the gpfg ’ s performance is measured against. the executive board is pleased that a solid excess return was achieved in a turbulent year. the positive trend has continued, and the return on the gpfg in the first quarter of 2021 was 4 percent. the gpfg ’ s performance must be assessed over time. the executive board is satisfied that the return over time has also been good. the substantial market fluctuations in 2020 nevertheless serve as a reminder that the return on

bank operates a flexible inflation targeting regime, so that weight is given to variability in inflation as well as to variability in output and employment. monetary policy affects the economy with a lag. the choice of a two - year horizon is thus based on striking a balance between variability in inflation and variability in output and employment, and a perception of how interest rates influence these variables. if extraordinary conditions prompt norges bank to apply a different time horizon than two years, the bank will provide an assessment of this. the same applies if special emphasis is placed on developments in financial markets. external cyclical developments and events have had considerable implications for developments in the norwegian economy. the international upturn came to a halt in 2000. the bubbles in the equity markets burst. many years of high investment led to excess capacity in some industries, and unemployment increased. the terrorist attacks on 11 september 2001 put a new damper on economic activity. from the summer of 2002 to the spring of 2003, a highly extraordinary accumulation of negative events in the global community - accounting scandals, fear of terror, war and disease - put a brake on growth. us interest rates, which were sharply reduced at the beginning of the downturn, have subsequently been reduced further. interest rates have also remained low in the euro area. key rates are now historically very low for several of our most important trading partners. long - term interest rates are also very low. the economic situation in norway remained firmer for a long period, and wage growth was surprisingly high in 2002. there was less scope for low interest rates than among our trading partners. as a result, the interest rate differential against other countries widened. this had an impact on krone exchange rate developments. in addition, special circumstances in the global economy led to a stronger krone than might have been expected from the higher interest rate differential alone. themes in foreign exchange markets shift. in periods, investor focus on stock returns feeds through to exchange rate movements. during periods of political and economic unrest, investors may choose individual currencies as a safe haven. in the autumn of 2002, the norwegian krone was probably also perceived as a safe haven. in the past 12 - 18 months, developments in the interest rate differential between norway and other countries appear to have had a particularly marked impact on our currency. norwegian interest rates have been pushed down towards the level prevailing abroad. in 2003, the interest rate differential narrowed as a result of monetary policy easing. the interest rate has been reduced by 5¼