economic perspectives annual address by governor øystein olsen to the supervisory council of norges bank on thursday, 18 february 2021 thursday 18 february economic perspectives 2021 norges bank economic perspectives 18 february 2021 introduction illustration : theodor kittelsen, photo : national museum / ivarsøy, dag arne one year ago, i stood here and delivered the annual address to 300 guests. this year is different. this evening there are no guests physically present at the central bank. the contrast with last year could hardly be greater. the same also goes for the theme running through this evening ’ s speech – the covid - 19 pandemic. not a trace of it can be found in last year ’ s speech. yet contagion was lurking right outside our borders. we sensed that something was brewing. norges bank was in the process of revising down its economic forecasts. the employees at our shanghai office had been sent home, yet we did not foresee how far - reaching the outbreak in wuhan would be. two weeks after delivering last year ’ s speech the first case was recorded in norway – soon thereafter, norway went into lockdown. since then, we have done what people do during serious epidemics – we engage in social distancing. we can still meet – in a way. technological innovation has provided us with new possibilities. during the black death, wealthy farmers from the western fjords of norway isolated themselves in jostedal, a remote valley that reaches into the mountains. they had to find new ways to communicate. the farmers maintained contact with the outside world by sending and receiving letters placed under a stone at the entrance to the valley. this past year, the letter stone has been replaced by the internet. a historically deep decline norges bank eleven months after the first lockdown, daily life has yet to return to normal. norway has been quite successful in keeping down infection rates, although we have seen regular flare - ups. the country ’ s borders are now closed. economic perspectives 18 february 2021 the measures to contain infection are necessary, but they do have side effects, both economic and social. people in risk groups have been isolating. young people have been following courses online – many alone in a bedsit. socialising with friends has been put on hold chart 1 historically deep decline gdp for mainland norway. annual growth. percent sources : statistics norway and norges bank for norway, the economic downturn will stand as one of the deepest in history ( chart 1

policy in a manner that will not endanger the price stability. monetary strategy in 2001, the nbrm will continue implementing the monetary strategy of targeting the exchange rate, thus remaining a nominal anchor in the macedonian economy. thus, in 2001, the nominal exchange rate of the denar against the deutsche mark will also be preserved at the targeted level of denar 31 per one deutsche mark. the preservation of the stable denar exchange rate, as an intermediate goal, will be directed towards achieving the ultimate objective of the monetary policy – the price stability. in addition, the annual inflation rate measured through the costs of living index, is projected to equal 1. 2 % ( december 2001 / december 2000 ). monetary aggregates taking into account the assumptions for the inflation rate, the real growth of the gross domestic product and the increase in the real demand for money in 2001, it is estimated that the nominal growth in the demand for money, expressed through the money supply m1 will equal 12. 0 %. in 2001, the money supply m2 – denar component and the broadest money supply m4 should increase by 12. 1 % and 13. 3 %, respectively. the projected growth in the money supply will enable regular execution of financial transactions in the economy and adequate liquidity of the banking sector, and simultaneously, will not disturb the stability of the domestic currency. reserve money and foreign currency net - purchase the stability of the monetary multiplier, in other words the existence of stable connection between the reserve money and the money supply has been taken as an initial presumption when projecting the reserve money. accordingly, in 2001 the reserve money is planned to increase by 12. 0 % in order to meet the projected growth in the money supply. the reserve money issuance is planned to be carried out through the foreign exchange transactions of the nbrm. in 2001, the supply is planned to exceed the demand for foreign currency on the foreign exchange market. in compliance with the strategy for targeting of the nominal exchange rate of the denar against the deutsche mark, the nbrm plans to purchase foreign currency on the foreign exchange market in the net amount of usd 29. 0 million in 2001 in order to preserve the exchange rate of the denar at the targeted level. the reserve money issuance based on foreign exchange transactions of the central bank will be supported through further increment of the government deposits with the nbrm. the support of the monetary policy by the fiscal policy, through the increase