this had an impact on exchange rate developments. in addition, special factors in the global economy led to a stronger krone than might have been expected from the higher interest rate differential alone. themes in foreign exchange markets shift. in periods, investor focus on stock returns feeds through to exchange rate movements. during periods of political and economic unrest, investors may choose individual currencies as a safe haven. in autumn 2002, the norwegian krone was probably also perceived as a safe haven. over the past 18 months, developments in the interest rate differential between norway and other countries appear to have had a particularly marked impact on our currency. norwegian interest rates have been pushed down towards the level prevailing abroad. through 2003, the interest rate differential has narrowed as a result of monetary policy easing. the interest rate has been reduced by 5¼ percentage points and is now approximately the same as among our trading partners. through 2003 and up to march 2004, the krone depreciated by about 15 per cent, measured by the import - weighted index i - 44. since the monetary policy meeting on march, the krone has appreciated again by about 3½ per cent. inflation has edged up, but is still low. in march, inflation stood at 0. 3 per cent. apart from some temporary, technical factors that may together account for 3 - 4 tenths of a percentage point, three main factors have contributed to explaining the substantial deviation from the inflation target : • first, the global downturn had considerable implications for the impact of interest - rate setting in norway, via the exchange rate and other channels. the strong krone contributed to low inflationary pressures. the depreciation in the krone exchange rate since january 2003 has not resulted in a significant rise in prices for imported consumer goods, as might have been expected. in recent months, however, there have been signs of higher prices for imported goods. clothing prices in particular slowed in march. • second, low external inflation and rapid shifts in the international division of labour have resulted in a fall in prices for imported goods and services. this also applies when these prices are measured in terms of what norwegian importers pay in foreign currency. • the change in trade patterns has made a considerable contribution to the sharp decline in prices for clothing, footwear and audiovisual equipment. we have nonetheless observed that the fall in prices for clothing has been somewhat more subdued in svalbard than on the mainland, partly due to the higher incidence of snowscooter

at a conference in budapest about a month ago, on 19 january 2007, by jacques de larosiere, former managing director of the imf and ebrd president and former governor of the banque de france : stage one : before the 1980s, governments were convinced that there was a trade off between “ a little more inflation ” and less unemployment. this policy eventually led to double digit inflation in advanced economies and galloping inflation in a number of developing countries. high inflation was finally recognized as inimical to growth and socially disruptive. in 1979 - 1980, the game of systematically seeking employment at the expense of price stability came to an end. the whole process had entailed high economic and social costs ; stage two : in 1980s and 1990s, monetary policy managed to reduce inflation. most central banks were gradually made independent from governments and acquired new credibility. this was the period of the triumph of central bankers. us inflation came down from 13 % in 1979 - 1980 to 2. 2 % in 1999. ” inflation has been a part of our lives for the last thirty years and it has become practically impossible to imagine living without it. it is always on our minds – when buying things or planning our future, when borrowing or giving presents – and it would feel strange not to count with the increase in prices! because it has been with us for over 3 decades, an abnormal situation has become normal and it is now feels abnormal that there is no inflation. true, if there is inflation, it is easier to do the budgeting, to plan, to breathe, etc. because if your prices are changing all the time and your exchange rate is unstable, you will never really be comparable with the rest of the world, as today ’ s calculation will simply not apply tomorrow, let alone the day after. the same is true of my role as the nbs governor : my job would be far easier if i chose to cover up my own and the institution ’ s inefficiency by means of inflation and currency depreciation. but times are changing, for, let me remind you, serbia is still in the process of transition and it will take some time yet to complete! if nothing else, the stability of prices and currency has at least impelled many to come up with much more creative “ explanations ” for price rises. only a year ago, the increase in prices of milk, cable tv and public transport services was blamed on the exchange rate … in the course of the past