expansionary effect. in order to prevent pressure from becoming too strong, monetary policy has to be tighter than would otherwise have been the case. monetary policy has therefore been given a clearer role in stabilising economic developments. a clear monetary policy target is a necessary complement to the fiscal guideline with a view to ensuring reasonable macroeconomic stability. the operational target of monetary policy as defined by the government is inflation of close to 2. 5 per cent over time. the inflation target provides economic agents with an anchor for their decisions concerning saving, investment, budgets and wages. households, businesses, public entities, employees and employers can base decisions on the assumption that inflation in norway will be 2½ per cent over time. the rise in labour costs is an important factor underlying norges bank ’ s assessment of the inflation outlook and interest rate decisions. if wage growth is too high - both in manufacturing industry and other industries - the internationally exposed sector will be affected in two ways. first, high wage growth will itself reduce earnings and employment. second, the interest rate will be raised. normally, this will lead to an appreciation of the krone, with a further reduction in earnings and employment. this will amplify the impact of high wage growth on manufacturing industry. since the new guidelines on the use of petroleum revenues were introduced in a period when the labour market was tight, the krone was expected to be strong in periods. the interest rate differential between norway and trading partners has resulted in a strong krone. the wide interest rate differential is due to the historically low level of interest rates abroad. the slowdown in global growth has been more pronounced and spanned a longer period than we had expected. the norwegian economy has also felt the effects of this. norges bank has therefore lowered the sight deposit rate from 7 to 5. 5 per cent since 11 december, most recently on 5 march. the interest rate differential has narrowed. since mid - january, the krone has depreciated, partly reflecting expectations of lower interest rates. monetary policy has been relaxed. there is uncertainty associated with developments in many of the factors that will influence inflation ahead, among others the exchange rate. this implies a gradual approach to the conduct of monetary policy. increased spending of petroleum revenues will have implications for norway ’ s industry structure. high demand for goods and services that require domestic resources, necessitates higher employment in the sheltered sector. this labour has to be recruited from the exposed sector, or through the natural increase

annual real rate of return of 1½ - 2 per cent. by way of comparison, the authorities have based their use of petroleum revenues over the central government budget on the assumption that the petroleum fund can generate a long - term real return of 4 per cent. it is unlikely that this rate of return will be achieved if we only invest in bonds. buying a bond means lending money to others. buying equities is the same as investing in real assets. buying equities gives us direct ownership of the means of production in global business and industry. on the one hand, these ownership rights provide high returns when companies are flourishing. on the other, shareholders are the first to sustain losses when companies fail. consequently, the return on shares fluctuates far more than the return on bonds, reflecting the higher level of risk. over the past 75 years, equity returns in the us market have been negative almost every third year. an investor will only invest in high - risk vehicles if it is reasonable to expect compensation for the risk. the compensation for high risk in the stock market is a far higher average return for equities compared with bonds. since 1926, the annual return on us equities has on average been 4. 8 percentage points higher than the return on bonds. also in most ten - year periods, investing in us equities has been profitable, with the exception of the depression in the 1930s and the last half of the 1970s. equity returns have been negative after ten years only in the years between 1928 and 1938, in other words on equity investments made the year before the 1929 stock market crash. it may also be worth noting that equities purchased during recessions - such as in the mid - 1930s and mid - 1970s - brought solid returns ten years later. the picture is the same for most other countries. since short - term fluctuations in equity prices are difficult to predict, it may be a sound strategy to keep the share of equities constant over time. this means buying a relatively large volume of equities when prices are low, and buying a smaller volume - or selling - when prices are high. this is the strategy applied by the petroleum fund. let us now revert to the norwegian economy and norwegian economic policy. the revision of economic policy in march 2001 can to some extent be said to be a consequence of our oil economy. the new guidelines have also changed the interaction between the different components of economic policy. fiscal policy will now have an