rates. in sweden, which has a lower interest rate level than our main trading partners, further interest rate hikes are expected. the interest rate differential between norway and other countries can have an impact on the krone exchange rate. in the short term, however, the factors that influence the krone exchange rate vary. high oil prices and krone appreciation appear at times to be related, but there have also been periods when the krone has appreciated while oil prices declined. the krone appreciated when the interest rate differential against other countries was high in 2002, but as interest rates in norway moved down to the level among our trading partners, the value of the krone fell back. in the past, we have observed that market turbulence has occurred in tandem with a weaker krone. this autumn the krone appreciated during the period of market turbulence, but has weakened somewhat in the past two weeks, reflecting shifting themes in foreign exchange markets. however, it appears the krone will be a good 3 per cent stronger on average in the second half of this year compared with the first half, and about 1. 5 per cent stronger this year than last year. exchange rate developments have a dampening impact on inflation. given our inflation - targeting regime, we will be mindful of the effects of higher interest rates on the krone exchange rate when inflation is low. high oil prices have resulted in substantial growth in the petroleum fund ’ s capital, and there are prospects of further growth ahead. the government uses the central government budget to influence economic developments. government petroleum revenues are transferred in full to the government pension fund – global and invested in securities abroad. however, as part of the budget resolution, the storting decides on an annual transfer from the fund to cover the deficit in the government budget when petroleum revenues and capital income earned by the fund are excluded. this annual transfer – direct petroleum revenue spending – has been sharply reduced in recent years, but is expected to increase somewhat next year. developments reflect a marked increase in the government ’ s general tax revenues as a result of the current period of strong expansion. this in turn reflects the automatic contribution made by the central government budget to curbing cyclical fluctuations because more money accrues to the state in good times than in bad. if the economy had not been in a period of strong expansion, and the economic situation had been more normal, a considerably larger transfer from the pension fund to the treasury would have been necessary in order to balance the budget

inflation in norway further ahead. at the same time, futures prices indicate that electricity prices will remain lower going forward than last year. lower electricity prices reduce business costs. that will also contribute to dampening inflation. chart : wage growth has risen although there are forces that are now pushing down on inflation, there are other conditions suggesting that inflation will remain elevated for some time ahead. wage growth has risen gradually in recent years. this year the social partners agreed on pay increases that will result in the highest wage growth in 15 years. this year's pay increases are not high compared with the rise in the cost of living facing many households, but the pay increases nevertheless add to the costs facing businesses. that will push up on inflation ahead. chart : the krone depreciated markedly in spring the krone exchange rate depreciated markedly over spring. the krone has appreciated somewhat this summer but is still weaker than around the beginning of the year. norges bank has not defined an exchange rate target. nevertheless, the exchange rate is of importance to interest rate setting because it has an impact on inflation. import prices for households and businesses rise when the krone depreciates. since spring 2022, the policy rate has been raised sharply and rapidly. the still - high level of inflation may give the impression that monetary policy tightening is not working. but had we not raised the policy rate, inflation would have been higher, in part because the krone would have been weaker. for that matter, we have yet to see the full effects of the past rate hikes. chart : growth in the norwegian economy has slowed the interest rate is now helping to cool the economy. activity in the norwegian economy is still high. employment is high and unemployment has remained low. but activity is now rising more slowly, with pressures in the economy easing. prices for existing homes are rising at a slower pace, and the stock of unsold homes has increased. the peak of the business cycle was likely passed towards the end of 2022. for indebted households, interest expenses have risen considerably. so far, many consumers have been able to maintain consumption thanks to the savings accumulated during the pandemic. but for a period ahead a larger number will likely have to tighten spending to make ends meet. many people are concerned about their finances and are questioning whether such a sharp increase in the policy rate is truly necessary. we are aware that there is a cost associated with raising the interest rate,