ida wolden bache : higher policy rate to bring down inflation to the target speech by ms ida wolden bache, governor of norges bank ( central bank of norway ), at an event to present the policy rate decision, arendal, 17 august 2023. * * * accompanying charts to the speech good morning, everyone, and let me thank sparebanken sør for allowing us to use their grand premises to explain the background for our monetary policy decision today. chart : policy rate raised by 0. 25 percentage point norges bank's monetary policy and financial stability committee decided to raise the policy rate by 0. 25 percentage point to 4 percent. norges bank's task is to keep inflation low and stable. the operational target is inflation of close to 2 percent over time. we are also mandated to help keep employment as high as possible and to promote economic stability. chart : inflation is high we are raising the policy rate to dampen inflation. in july, consumer prices were 5. 4 percent higher than one year earlier. excluding energy prices, inflation is now running at around 6½ percent, which is markedly above our target. high and variable inflation has substantial costs – to people, businesses and society. it becomes more difficult to plan ahead and to judge whether the price of a good or a service is reasonable. pay increases that appear generous when they are agreed early in the year can after a few months be wiped out by a surge in inflation. a rapid and unexpected jump in prices hits low - income households in particular and those who can least afford it. chart : inflation is broad - based prices for many goods and services are rising rapidly, both for imported goods and domestically produced goods and services. initially, the rise in energy prices was the key driver of inflation. subsequently, prices for food and other products also contributed to pushing up inflation, while the contribution from energy prices gradually diminished. recently, inflation has been increasingly driven up by higher prices for services, such as airfares and cultural services. chart : international inflation is receding inflation has also risen rapidly internationally. in order to contain inflation, many central banks have responded by raising their policy rates to the highest levels observed since the 2008 financial crisis. 1 / 4 bis - central bankers'speeches we are now seeing that inflation is subsiding in many jurisdictions. trade flows across countries have become more normal after the pandemic, and freight rates have fallen. lower imported goods inflation will also dampen

serious challenges liquidity support through the government guarantee scheme remains necessary it is a well - known fact that greek banks did not cause the crisis, contrary to what happened in other countries, but suffered the consequences of the fiscal derailment. the downgrading of banks ’ credit ratings, consequent on the downgrading of the country, meant that banks were shut out from the markets, while they also lost a significant proportion of deposits. against this background and in order to meet their liquidity needs, banks had recourse to the liquidity support measures adopted by the greek government including a state guarantee scheme. such measures had been adopted by all eu countries in 2008 at the height of the global financial crisis. it should be recalled that under this scheme the state, for a fee, guarantees debt securities issued by banks ; it does not provide banks with cash. these guarantees enable banks to bis central bankers ’ speeches obtain liquidity from the eurosystem by providing them with eligible collateral. it should also be noted that, because of the haircuts applied, the liquidity that credit institutions can obtain using government - guaranteed securities as collateral falls significantly short of the nominal value of such collateral. the ability of banks to raise liquidity from the eurosystem by making use of government guarantees has averted a credit crunch. although nominal gdp fell by 2. 1 % in 2010, the outstanding amount of bank credit to the private sector in december 2010 remained unchanged year - on - year. given the financial environment, without the extraordinary provision of liquidity by the eurosystem the banks would have been forced to expedite the collection of their claims, cut back on loan rescheduling and reject applications for new loans even from creditworthy customers. however, the extraordinary liquidity support measures taken by the ecb and the government are temporary in nature. they aim to give banks time to adjust their business model to the new circumstances. this adjustment must be performed in an orderly manner, so as not to further aggravate the current economic downturn nor dampen the recovery, once it begins. in other words, banks must, as soon as possible, be in a position to intermediate between savers and investors relying on their own resources, rather than on the extraordinary support provided by the ecb or the state. the new conditions make it imperative for the banking sector to change its business model the banking sector, just like the economy as a whole, has found itself up against unprecedented challenges