/ 4 per cent until the end of june 2010. i will elaborate on this conditional commitment in a moment. • in total, since december 2007, we have cut interest rates by 425 basis points to their historic lows and lowest possible levels. it is the bank's judgment that this cumulative easing, together with the conditional commitment to keep rates low for a considerable period, is the appropriate policy stance to move the economy back to full production capacity and to achieve the 2 per cent inflation target. a framework for conducting monetary policy at low interest rates • however, these are uncertain times and if additional stimulus were to become necessary, the bank retains considerable flexibility in the conduct of monetary policy at low interest rates. • we have outlined in detail how we would use that flexibility in conducting monetary policy at the effective lower bound, in the framework published in our recent mpr. in this document, we describe the unconventional instruments that are available, the principles that would govern our use of these tools – should we decide to apply them – and the exit strategies that we would employ when these instruments were no longer necessary. • the three key instruments we have identified for conducting monetary policy at the effective lower bound include : conditional statements about the future path of policy interest rates ; quantitative easing, which involves the creation of central bank reserves to purchase financial assets ; and credit easing, which includes outright purchases of private sector assets. • if required, these instruments could be used separately or in tandem to improve financial conditions in order to support aggregate demand and ultimately achieve the inflation target. • as you are aware, the bank deployed the first instrument on 21 april. as a result of our conditional commitment to keep rates at 25 basis points through the end of june 2010, interest rates across the maturity horizon of the commitment fell. they also dropped relative to those in the u. s. • let me reiterate that the bank's conditional commitment is not a guarantee. it is conditional on the outlook for inflation. we will always set our policy rate at a level consistent with achieving our 2 per cent inflation target over the policy horizon. • similarly, if the bank were to deploy either quantitative easing or credit easing, it would act in a deliberate fashion based on the following principles : ( i ) the focus of these operations would be to improve overall financial conditions in order to support aggregate demand and achieve the inflation target. ( ii ) asset purchases would be concentrated in maturity ranges in order to have the maximum impact on the economy. ( iii

krone. the krone exchange rate fluctuates from day to day, from week to week, and from month to month. we have free international trade and free capital movements. we do not have the instruments for fine - tuning the exchange rate. but when monetary policy is oriented towards low and stable inflation, this will contribute to a stable krone exchange rate over time. interest rates influence inflation through their impact on domestic demand and on the market for nok. when interest rates rise, it is more profitable to save and more costly to borrow. this dampens consumption and investment and hence aggregate demand. lower demand in turn curbs the rise in prices and wages. higher interest rates make it more attractive to take krone positions and borrow in foreign currency. as a result, higher interest rates normally lead to an appreciation of the krone. this reduces prices for imported goods. in addition, a strong krone reduces activity and profitability in the internationally exposed sector. it is important to be aware of the relationships between employment, output and inflation. if there is a shortage of labour and other economic resources, a tight monetary policy stance will reduce inflation by affecting aggregate demand. conversely, when unemployment is high, low interest rates stimulate demand, which will contribute to stable wages and prices. a monetary policy stance that is aimed at stabilising inflation will thus also contribute to stabilising aggregate output and employment. but there is little monetary policy can do to prevent an increase in unemployment that is driven by high cost inflation. the mandate implies that the interest rate must be adapted to the outlook for the norwegian economy. if it appears that inflation will be higher than 2½ per cent with unchanged interest rates, the interest rate will be increased. if it appears that inflation will be lower than 2½ per cent with unchanged interest rates, the interest rate will be reduced. this orientation of monetary policy will normally also contribute to stabilising output and employment. a time horizon of two years when setting interest rates allows monetary policy to contribute to stabilising production. this horizon prevents monetary policy in itself from causing unnecessary fluctuations in the economy. a relevant example is the outlook for the next two years. against the background of the recent years ’ appreciation of the krone, consumer price inflation is projected to be lower than the inflation target over the next year and then move up towards 2½ per cent in two years. as an alternative, we could have sought to achieve the inflation target of 2½ per cent