however, the overall central government budget will have a stimulatory effect. this is reflected in fairly strong nominal spending, which is higher than the rate of growth in mainland gdp that can normally be expected. norges bank ’ s interest rate setting is based on two main criteria for future interest rate developments. first, the interest rate is set with a view to stabilising inflation close to the target in the medium term. the horizon will depend on the shocks to which the economy is exposed and their effects on the path for inflation and the real economy ahead. second, the interest rate path shall provide a reasonable balance between the path for inflation and the path for capacity utilisation. in the assessment, potential effects of property prices and the krone exchange rate on the prospects for output, employment and inflation are also taken into account. the results of this trade - off are presented in the monetary policy report in the form of a chart that presents baseline scenarios for the interest rate, inflation and capacity utilisation in the economy. in monetary policy report 3 / 07 it was pointed out that the inflation outlook is marked by opposing forces. the rise in prices for domestically produced goods and services is gathering pace. the norwegian economy is still expanding, with unusually high demand for intermediate goods and labour. at the same time, the krone had appreciated markedly. this may restrain inflation. the analysis implies that the key policy rate should be raised further, but to a lesser extent than envisaged in june. at its meeting on 31 october, norges bank ’ s executive board decided to leave the key rate unchanged at 5 per cent. at the same time, it was made clear that the key policy rate will probably remain in the interval 4¾ - 5¾ per cent until the next report is published in march 2008, unless the norwegian economy is exposed to unexpectedly severe shocks. the projections are shrouded in uncertainty. the projections for inflation, output, the interest rate and other variables are based on an assessment of the current economic situation and the functioning of the economy. we have illustrated the uncertainty surrounding the projections for the interest rate, inflation and capacity utilisation with fan charts. the wider the fans, the more uncertain the forecasts are. if economic developments are broadly in line with projections, economic agents can also expect interest rate developments to be approximately as projected. on the other hand, the interest rate path may shift in relation to the projected path if the economic outlook changes or if the effects

, but probably not back to the level in 2002. salmon prices fluctuate widely and are driven by a variety of domestic and global factors. salmon prices rose sharply in summer 2006, driven by strong demand growth, particularly in europe. enterprises in norges bank ’ s regional network report growing demand for high quality salmon. avian flu and other crises linked to meat products have increased the preference for fish products. in the course of autumn 2006, salmon prices fell back to the levels before the price upswing, driven partly by somewhat lower demand but also by an increased supply of salmon. the orientation of fiscal and monetary policy the government uses the central government budget to influence economic developments. government petroleum revenues are transferred in their entirety 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 government budget deficit, excluding petroleum revenues and capital income earned by the fund. 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 favourable periods than in adverse periods. 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. this cyclically adjusted transfer is estimated at a good nok 71 billion this year, and just under nok 77 billion in 2008, and has increased gradually over time. it is this estimate that underlies the plan drawn up by the government and the storting, referred to as the fiscal rule. the rule states that the government is to spend, as an annual average through the business cycle, the expected return on the petroleum fund i. e. 4 per cent. because of the high level of activity, the government has proposed somewhat lower petroleum revenue spending next year than the 4 per cent of the fund ’ s value at the beginning of the year. the proposed tax programme for next year will have a fairly neutral impact on economic activity. proposed direct and indirect tax rates will generate approximately the same government revenues as last year ’ s tax rates had they been left unchanged.